Nine and a half years, there's other things, and some spots didn't correlate.
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.
Something isn't within the market, something within capitalism causes this.
Causes a stationary period where there's money supply increases, prices increase, increased productive activity, everybody's happy.
And all of a sudden, bingo, there's a collapse, there's a bankruptcy, there's unemployment, prices fall,
and this is a terrible thing, and the government should step in and iron it out, which is the usual conclusion.
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.
And I would say most economists today still hold this one for another.
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.
And of course, that's good old Papa's government.
So when we're gone out of the machine, which comes in
and corrects everything, if people spend too much, absorb,
there's a great Pansian phrase which I love, particularly,
sop up excess purchasing power.
Like the bounty of bitter pick-up in nutrition.
And if the people out there don't spend enough,
you're pumping spending in, in order to get the juices going.
So that's the government, as I say, steps in as the corrector of all this.
In the Keynesian theory, by the way, the Keynes had no theory of the business cycle.
It didn't say why there's underspinning and overspinning.
At one point, he said investment increases because of animal spirits.
And then it decreases with animal spirits, I guess, collapse.
So at any rate, so there's no theory of the business cycle.
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.
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.
One side is the abyss of the pressing, the other side is the other abyss of the quagmire, the mountain cliff or whatever, inflation.
And even though the Keynesians, at least non-leftist Keynesians, moderate Keynesians or Keynesians will admit,
the free market works very well in the microsphere, the sphere I've been talking about before,
the supply and demand intersecting and clearing the market and all that.
That's great, they said, free market is good micro, but macro is total chaos.
The only collaborating process in the macrosphere is nothing which will keep the economy and even keel.
And therefore we need the government to adjust it, come in, fix everything up.
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.
Millions of words have been written about, lots of equations, but the essence of it is very subtle.
You find the essence of all this stuff, and you kind of fade to the core. It's quite simple.
One thing is, when Keynes' general theory came out, I went to college about six years after Keynes' general theory came out,
nobody understood what the hell I was saying. I mean, nobody.
I mean, because it seemed very peculiar. On one page he said,
the key to my thought of the savings always equals investment. Always, always equals investment. Key.
Two pages later he said that Kiedemann thought that savings are always different from investment.
Well, I mean, how do you grapple with this?
So, since Keynes had already established a reputation as a big shot,
as a distinguished intellectual and economist,
therefore he couldn't be wrong, he couldn't be absurd or whatever.
There must be something deep in the new jargon that he created,
all sorts of new phrases, marginal capacity to consume, multiply, and all that.
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.
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.
He said what a great joy it was, what a wonderful thing to be under 35 when Keynesian general theory came out.
He was young enough to appreciate this great revelation, this great truth, which emerged upon the world.
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.
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.
They're still arguing about what Keynes really meant.
There are conservatives that think Keynes didn't really mean what the Keynesians said he meant.
I personally think he didn't mean it if he meant anything at all, because the Keynesians...
The only person who might be doing any sense whatsoever out of this mishmash is total muck.
There are no Keynesian diagrams in the General Theory. You won't find a diagram in it.
It's just a little verbiage, incoherent verbiage.
An interesting thing is Keynesian is a good writer. Qua writer, he's very good.
When you get to the General Theory, I think incoherence was the one that was incoherent in the language.
How old was he when he wrote it?
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.
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.
Now you've got dollars on both axes, each one being national income or whatever.
Spending, yeah, it's the same stuff, it's just slightly variations.
Does anybody know about the gross national product?
Eh?
Gross national product, is that Keynes' idea?
Yeah.
Well, the statistician discovered a little bit before that,
but Keynes needed the concepts in order to develop the theory.
You can believe in the gross national product
without being Keynesian, but you can't be Keynesian
without believing in gross national products,
but that way, the national income and the whole approach.
So the axes are the same, key thing, millions of dollars
or whatever, millions of francs or whatever.
The axes are identical, so this is 100, that's 100, the same distance.
So since the axes are identical, you then have a 45 degree angle, which is also identical.
So this is 100, 100, so the coordinates are 100, 100, 200, 200, whatever, going on up.
So this 45 degree line then becomes national income, or gross national product,
And whatever variance makes any difference.
Let's say national income, let's say people receive, how much will people spend?
A person gets $10,000 all year and spends maybe less, maybe more, somewhere fluctuating around there.
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.
King's trying to get the theory of a macro-optimum here, macro-equilibrium, so to speak.
The theory was that expenditures out of income
will have a certain function.
Expenditures have a certain function of income.
And it's a function shaped like so.
It's flatter.
The expenditure function is flatter than the natural income function,
which is just called y for some unknown reason.
They couldn't call it i, because i is already
taken for investment, a symbol for investment.
because they made it lie.
So now, this is not self-evident, to say the very least.
I mean, if you're looking for a thicker expenditure
to function bank, if, for example, people received last year
$500 billion, they'll probably spend around $500 billion,
maybe less, maybe more, let's say less.
But whatever, there's no reason to assume
it would be spending much more than income
and to keep going from the left at some point,
and much less than income to keep going right at some point.
There's much more likely to be something
There's some zone around here, right?
There's no reason, if you look at it sort of rationally,
there's no reason to think there's any kind of point there.
And how King's got to the point, we'll see as he envelops us.
So then you have, this is income expenditure.
And he said, well, if income is higher than this point,
let's say it's, I don't know, $300 billion, isn't it?
But if income is higher than this, people spend less.
And as you keep going, as income keeps going up,
you spend less and less.
What happens to the money, by the way?
As Randall would say, blank out.
The money, the Keynesian phrase, leaks out of the economy.
So it disappears.
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.
Alright, so, this leaky engine, Keynes called savings, savings is the thing that leaks out.
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.
So you have this concept of leakage, and then you have, the economy is down here,
if you have, let's say, $100 billion nationally, now people spend $200 billion.
Where do they get the money from? How do you have a situation?
Consider yourself, if people are getting, receiving a payment of $100 billion,
they spend $200 billion. Where the hell do they get the money?
Supposing from under the floorboards, some from heaven, again, as I say, blank out.
So, the only sets they had, the Keynesians who worked out these diagrams, the only set they had was this.
They said, well, Keynes is thinking about two different things.
He was looking at a time dimension, and he said as follows.
Let's say national income is $500 billion here.
So if you look at it as a time dimension, day one, year one, whatever you want to call it,
Some time periods, like year one.
Income is $500 billion.
It's this expenditure is $400 billion.
The rest of it leaks out.
The rest of it's piled up in hoards.
It's gone to the floorboards or whatever.
So that means that since expenditure equals income,
this is the other part of the thing.
How can it be the same?
Well, it's the same as follows.
and the way to build that up.
I spend $0.30 for a newspaper.
Let's talk about how both parties benefit.
If you don't concentrate on the newspaper,
let's talk about the money.
Here's me.
I spend my expenditure, small e, equal to $0.30.
And then, the news dealer's income in a gross sense,
the money coming in, in his pocket, is $0.30, small y.
So, expenditure, every time anybody spends any money, my expenditure is, by definition, equal to his income and determines it.
The expenditure of the money is the act of force, we're looking at the money.
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,
except he drops it down a grade of the Ring-O-Lang or something, which is rare.
So, therefore, expenditure is identical with income and also determines income.
This is the act of force if you're looking at money income, OK?
So, OK, fine.
Then what they do is they aggregate
to a whole economic system.
Every person in the economy spends money
over a certain time period a year.
So this is called capital E, which
is the sum of all the small e's.
And capital Y is the sum of all the small y's.
And therefore, capital E has got to be identical to capital Y.
and I've got to determine it.
All right.
I mean, all of this, I think, is true.
I don't know what it gets you, particularly,
which might be interesting for statistical purposes.
So the people spend during the year $500 billion.
They have income.
They spend $400 billion.
What happens to the $400 billion?
That becomes income.
In other words, expenditure of the active force.
You spend $400 billion.
National income is $400 billion.
What happened with the other $100 billion leaked away?
So this means that year two, the next year, income is $400 billion.
In other words, the only thing that makes sense out of this
Kane saying on one page, expenditure always equals income.
The next page, the expenditure is always different from income.
Let's look at it at a different time limit.
And what he was saying was, this year's expenditure
determines next year's income.
This month's expenditure determines next month's income.
So you have a ratchet effect.
Income is $500, 100 weeks away somewhere.
So the next year, income is only $400.
So you're now down to $400.
And then you have a free will decision by the masses.
How much do you spend out of $400?
When you look at it as a function of income,
according to the postulate, it's not proven.
This postulate of expenditures like this,
this is now down to $350.
So, expense is $350, year three, income is $350, this is here, and a couple of years
so you get back to $300 of the equilibrium.
At $300, whatever that is, year five or something, expenditure is $300, income is $300,
and expenditure will again be $300.
And there you are, you're in equilibrium national income.
The thing is Keynesian macroeconomic.
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.
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.
They take it out of boards, they take it out of the mattress. They spend $250,000.
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?
It means you're saying, why is expenditure supposed to be a flat function of income?
Good question. I don't know.
This is absolute garbage, aren't I?
Well, I will try to explain how he gets to this. Each step is garbage.
Inclusion is garbage, and each step is garbage.
There's no need to try and understand him, actually, because of his godly.
No, I think you should understand him.
The point is, we argue with these people all the time.
We don't understand what their terms would mean.
Yeah, we don't understand how to get to what the basis of the whole thing is.
So, the next year, I mean, next year too, then, income is equal to expenditure.
In other words, look at a little algebra here.
Expenditure sub n is equal to and determines y sub n plus y.
And then out of that, you make your free will decision
how much to spend.
So you're getting down, yeah, so this is now 250 up here.
People spend 280.
Expenditure is still high on income, but less so.
They're taking some more out of the floorboards
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.
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.
They ain't got the money.
Aside from that, how could this thing ever change?
How could this change here?
With supply and demand, you know how things change.
The prices, the equilibrium prices change.
Either with supply change or demand change.
There's only one function, expenditure and income.
How the hell do you ever get out of this?
That's an interesting point.
I don't think, if there is such a function, you can ever get out of it.
I actually think I'm supposed to say this thing forever.
All right, so...
When you get it, it's even going to be constant, though.
Huh?
I mean, when you get it, it's even going to be constant.
They have to prove, I'm going to prove a couple of things.
They have to prove that it's stable function.
If it's function, it should be in some sense stable.
They also have to prove that it's flat, like that.
Neither is self-evident, neither is true.
Okay?
I'm getting to them.
I'm exploring more and more of this insanity to keep on with this.
Sorry, I'm lost. Where does the hundred go?
Okay, it's somewhere. Does it ever read here?
Well, it could read here or over here, if you're down here somehow.
They don't explain it. You have to just say explain.
It's gone.
You're not supposed to ask that question.
You have to look at it rationally, I mean.
Okay, it's just as long as I can be lost.
The math inspires you to smoke it.
If you could spend the extra hundred over there, why can't you spend it over here?
That's another question Apple has asked.
Because it's a fixed function, it's a determined function in some way.
Why is it a determined function? Well, we'll see why they think of it that way.
Well, if this on the right is true, then how do you ever get to the left?
Who knows?
I don't think anybody can ever get out of here.
What's in there?
Well, they have to assume a change in the function, which they do.
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.
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.
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.
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.
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.
Goldberg is an advisor, an economic advisor to our Prime Minister.
He took an office as garbage too, but it's like...
Okay, anyway, he's also a Keynesian, tumbling everything out, he doesn't stress it.
One form today, I think, was the article a little while ago on Keynes and Schumpeter, something like Schumpeter.
Yeah, Schumpeter. Yeah, it was Peter Drucker who did that.
I wasn't too good on it. I thought Drucker was pushing Schumpeter for the wrong reasons.
It was an interesting article, I didn't buy it.
Anyway, so let's assume this is correct for a minute.
Let's assume there is an equal equilibrium.
Production is one-to-one correlation with the national income, and employment is one-to-one correlation with production.
So that, the higher the national income, the more the production, the higher the employment,
the lower the national income, the lower the production, the lower the unemployment, severe
unemployment problems, the lower the national income.
If you look at that, you look at this thing, it seems to be total garbage.
National income has gone up for ten-fold in the last hundred years or something, employment
are the same. There's no difference in employment.
Why shouldn't employment have anything to do with national income?
What's going on here?
Even production is hardly going to have a one-to-one correlation with that.
It's just spending.
So a couple of hidden assumptions here, which are a clicker.
It took until 1950, a whole series of equations for
Franco Mugagliani, a distinguished Italian-American Keynesian,
to come out and figure out how Keynes gets to this thing
where employment depends on national income, where the lower the national income, the more unemployment.
And the hidden assumption there, the clicker on the arm, which is one of the beginnings of this,
at least the retreat from Keynesianism among the high theorists, okay,
they looked at this thing and they finally understood the whole equation of how they all fit together and they come to God.
He's assuming rigid wage rates downward.
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.
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.
Wage rates are fixed downward. Aha! Now we can only make some sense out of some of this stuff.
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.
Everybody should be more or less in the same position. There shouldn't be any big problem after the transition period.
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.
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.
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.
The Wage Rate is rigid downward by exogenous union and government forces.
If Keynes had admitted that from the very beginning, it would have been a very different story.
What it means is the onus of unemployment rests on the government rather than on the free market.
It took a lot, let's say 15 years, to realize this is a hidden assumption.
Even then, they weren't very happy about the Keynes Deal.
So it's tucked under some kind of limbo there, corollary.
OK, so rigid wage rates downward become a key to this, the unemployment problems.
So, and it became pretty evident that the whole Keynesian trick was to solve the pressures by creating inflation,
by creating increasing money supply, by increasing prices.
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.
The essence of political Keynesianism, it's a whole bunch of trickery, it's duplicity on a mammoth scale.
It's people who claim they love the working classes and each time they're inflating prices higher than wage rates,
so the real wage rates, in terms of purchasing power, go down.
So the unemployment problem is unsolved, they're very tricky, it's a roundabout fashion.
OK, so that's the political essence of Keynesianism, underneath a little camouflage.
I'll continue on with a little theory here.
Well, first of all, one of the things that happened was he said that the Keynesians in the 1930s said,
well, the economy is mired here, we're finished, et cetera, et cetera.
You have to have mammoth government spending to what?
Increase, let's drop it this way.
I'll continue on with this thing.
Income, expenditure, there's some line here, there's some full employment line,
magic full employment line, which is somewhere, say here.
This is the line at which unemployment is wiped out if you keep increasing national income.
If expenditure is such that the intersection point below the full employment line
you have permanent depression, there's no way the free market economy can get out of it.
No wonder it's called the bankruptcy machine.
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.
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.
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.
But if the expenditure line is flat, if the intersection point is, say, 600 million, that means that there's inflation.
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.
We're stuck, we're mired in this evil expenditure fluctuating with no selfie collaborator as the micro-sphere apps.
Therefore, government gone out of the machine comes in, pumps in spending, or takes an app, stop, stop, our excess purchasing power.
And does what? Well, destroys it, burns it, who knows.
So, okay, where does the government get the money from?
Essentially, that's blackout, also.
Government spends it, it creates, by deficits, and it has also an inflation, it has surpluses.
The original Keynesians were kind of cute about this, they said, well, they said, we have a business cycle of something like this.
Old fuddy-duddy reactionaries are in favor of balanced budget.
Well, we are in favor of balanced budget, too, just we're not limited to the concept of the year.
We believe in balanced budget on the entire cycle.
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.
So over an eight or ten year period, we have a balanced budget, right? This is called the concept of a cyclically balanced budget.
What's happened to the concept of a cyclically balanced budget? It's now the old Orwell memory hole. Nobody talks about it.
No Keynesian textbooks write about it, because obviously there ain't no balanced budget.
There's either a very big deficit or a slightly less big deficit.
So the concept of a surplus is going awesome.
Nobody talks about budget surplus anymore.
You don't check at a flight show about budget surplus.
You check it by slightly reducing the deficit.
I thought of that.
Now, how do they get at this thing?
How do they arrive at this flat function?
There are two things they have to support in some way.
The expenditure function is flat, and therefore
has an intersection of one point.
And on the stables, you can even talk about it.
Well, the first thing that happened with Keynesians
came in about 1945 with Simon Kuznets,
who's not one of my favorite economists,
who's sort of an establishment statistician.
He said, well, gee, if you look at it over time,
Over the last 150-year period, consumption doesn't go like this.
National income increases, expenditure doesn't go like that.
Expenditure is more or less the same proportion
of the national income as it always was.
Therefore, expenditure function rises secondarily in the long run.
Keynesians say, yeah, you're right.
Over a long period, expenditure keeps rising to meet income.
And therefore, you don't have a 100-year depression.
It's only 20 years, something like that.
It's the first big concession of Keynesians.
OK, yeah.
Maybe we can get out of this now for 20 years.
Anyway, how do they get to this thing?
They get to this expenditure function as follows.
I think in the history of economic thoughts,
it might be the biggest single collection of fallacies.
They're tough to really judge it with this.
You have this allegedly fine expenditure function.
You might have had it as follows.
Well, expenditure consists of two kinds of expenditure.
There's investment and there's consumption, right?
Investment is on capital goods and lower consumption of consumer goods.
Consumption is about 90% of investment, 95, 80, whatever it is.
And investment pays at no theory investment.
Investment is free-flowing. It's animal spirits. It's free will.
Investment is free will. It's voluble. It's cookie.
It's rookie, it's whatever, booms and busts, there's no determined law of investment.
Consumption, however, is different. Consumption is fixed and determined, like so.
Flat, intersecting at certain points.
Is there another one where there are arbitrary assumptions?
Yeah, well we're going back beyond the arbitrary assumption of expenditure function.
They don't talk about expenditure function, they talk about consumption function.
But this is essentially what they're saying.
They're saying that expenditure function, which can be broken down into two parts,
Investment, which is constant here, because it's not a function, it's free will.
And consumption, which is determined passive, because consumers are determined passive jerks or whatever.
And they have this kind of a function. Stable, consumption function.
If supply and demand is a famous phrase for microeconomics, the famous phrase for Keynesian is consumption function.
So, consumption function is flat-ish and it's stable, why is it flat and stable?
And by the way, what happens then is, investment is free will, consumption is passive determined.
And what else is free will in the world? Government. Government expenditure is very free will.
They got free will out of the yang-yang. So government then steps in and supplies the efficient expenditure.
Therefore, government spending is honorary investment, specifically the same thing as investment, because it's free will.
Consumers are passing the term, investors are free will, but volatile and sort of undependable, and government is free will and rational.
And that steps in and corrects these flaws of the free market.
Good thing too.
Yes, absolutely.
I mean, where would we be without it?
Where would we be, right?
OK, so, how do they get this consumption function, the c plus i and all that?
Well, the stability, well, the shape of the consumption, I mean,
the key to this thing is it has to have an intersection point.
If it doesn't have an intersection point, the whole thing washes out.
They got it from budget studies.
It's a very interesting methodological leap.
1935 or 1936, the Department of Labor had a budget study.
What they did is they investigated people's incomes and their consumption.
And they found out, not, I think, unsurprisingly, this has nothing to do with national income.
These are people's income, groups of people.
They found out that if you go up, if this is income classes, this is, as you have this national income,
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.
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,
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.
So you have, then, a much lower consumption rate, consumption proportion, and in middle classes it's closer to the line.
And something like that. And then you get to poor people, you find that lower income people spend more than they take in.
So somebody makes $2,000 a year, he spends $6,000.
You have this kind of a function.
If you're dealing with income classes within the same period,
same year, therefore, they said, see,
that's the consumption function.
Now, some of the many things wrong with this.
One is, these are not dealing with national income,
they're dealing with groups of people
within the same national income.
It's a very entirely different thing.
It's true that a rich person might spend less,
consume less than a poor person.
So it doesn't mean that if everybody is richer, everybody will spend, will consume less than before.
Two totally different things.
This whole thing gives you one point on this graph. It doesn't give you the whole graph.
So that's one big problem. It doesn't establish a damn thing.
Secondly, a Milton Friedman point. Actually, Milton Friedman was probably his biggest contribution to economics.
His so-called permanent consumption function.
He said, look, people don't spend money, but they consider how much they consume out of their current income.
They don't only consider their current income, they consider what their income was two years ago and will be two years from now.
Supposing you have a best-selling author, for example, Irving Wallace.
Let's say he writes a top novel every five years.
If he gets one million dollars one year, he's not going to spend all of it that year.
He's going to allocate it over a five-year period.
If you catch Irving Wallace in his flush year, he'll be spending way below his income.
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.
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.
So Friedman essentially did that and found out, lo and behold, that if you do that, everything changes.
And so this budget study thing shifts from this to something like that.
So the people who really have low incomes for five years spend less.
Where the hell do they get the money from? Of course, that's another interesting question.
If you're really poor, you don't have $2 million in a little floorboards, and you don't get permanent credit either.
You can get some credit from friends, neighbors, or store keepers, but pretty soon it washes out and you keep getting some income.
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.
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.
And plus the fact it doesn't really pertain to national income changes.
So that takes care of the flatness. What about the stability? How do they get the stability? Why should it be stable?
They get that from this. For 30 years or so you take national income.
OK, this is one of the big, this is sort of like a walk-case in many ways, like a walking mathematical fallacy.
A statistical fallacy. Take, this is over a different year, take income, national income and consumption and plot them, OK?
And you get something like, something like that. It's all around the same amount.
The same amount, the deviation, the variation around the correlation is very small.
If, on the other hand, your plot naturally come with saving or investment,
you get a much bigger variation, something like that.
The conclusion was that consumption is a very stable function when it comes to the very small variance around it,
where its investment or saving is very volatile and free will.
It's really best to follow them if you will, because the correlation is, the variance around them is much greater.
The trick here, the gimmick involved is, if you take something and correlate it with 95% of itself, you get a very high correlation.
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.
Looks like it's unstable. That is the hooker. That's the key to the key function.
They correlate something with 90% of the stuff that looks stable.
Correlate with 5% or 10% of the stuff that looks unstable.
So my little satiric thing, which I have in my common state,
reducing this reductio ad absurdum is as follows.
Why only have an investment cost of the sum?
Those aren't the only things which make up a national income, right?
Take national income, and is equal to income of Brooklyn, V, plus income of every other place except Brooklyn, called V for everybody.
So, and you correlate the two things. If you correlate national income with all income except Brooklyn, this is about 99% of that.
If you correlate national income with everything except Brooklyn, you've got to vary it to something like that.
Very high correlations, no variation around, it's invisible.
If on the other hand you correlate national income with Brooklyn income, there's a lot of variation all over the place.
So you can therefore conclude that Brooklyn is the key.
Okay, not investment, how about investment?
The multiplier, the investment is equal to, you can't even invest in a specific subject, this is 95, this is 5.
The multiplier is 20, this is the famous Keynesian multiplier.
The conclusion was, if you increase investment, and government spending, remember, is the same as investment.
It's honorary investment, it's an increase, I actually look at my tiny fold.
This was the original, heady days in early Keynesianism.
I think we have a much more powerful multiply. In Brooklyn, we have a hundredfold increase.
If you give $10 to every American in Brooklyn, you have a $2 trillion increase in actually.
This is a multiplier effect. It's a stable multiplier.
I think you should pull out Murray Roth.
I did. That's the punch line. You're stepping on my punch line.
So, Brooklyn is a volatile, free will, free willed people, volatile, free willing, everybody else is a schnook without their passive determinant.
And of course, as you said, the conclusion of the whole thing is that the Rothbard multiply is much more powerful.
If you take natural income equals Rothbard income because everybody else except Rothbard.
...correlate them...
...prove that this correlation between national income and everybody else's income is very stable, you can't see any difference...
...correlate MY income and national income, there's almost no correlation at all...
...therefore I have free will, I'm volatile, I mean everybody else is schnucky, passive and determined...
...give me one buck and I'll, you know, refashion the universe...
...national income will go up by two, three trillion dollars...
Just we give you a million, right?
Right, exactly.
Give me money, and all good things will come of it.
You've clearly solved the problem.
This is what Trudeau wants.
What's that?
This is what Trudeau wants.
And the Keynesians cannot rebut this.
This is a reductive absurd of Keynesianism.
There's no way they're going to counter this.
It's like, wow, it's ridiculous.
You're going to need that.
So, anyway,
At any rate, I think it's pretty clear this time, this whole thing is one big, gigantic scam.
The question then becomes, if the government is supposed to pump in deficits during the recession
and take out, sump up our purchasing card, boom, first place, how do they arrange the deficits?
What about Keynesian deficits? Well, Keynesians themselves say it doesn't make any difference to just have a deficit.
But it came pretty clear that people are sort of semi-Keynesian.
Whether it makes a certain amount of difference here, if you...
If you borrow money from... If the government borrows money from capitalists or public,
it's true the government will spend say $100 million, but it might be offset by $100 million,
not spent by these other people. They could have spent money. They could have had their own multiplier.
And then Keynesians are separated into several categories.
Most people think that Keynesians are less liberal, but that's not necessarily true.
As a matter of fact, the people who brought us the Ford administration, the Nixon administration,
and now most of the Reagan administration are Keynesians, they're conservative Keynesians.
So it's a different aspect of the same doctrine.
So how does this work?
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.