Over almost a century Bastardized Keynesian Theory has become the Wmap of public spending policy; it has become the dark energy behind our ever expanding national debt, and is at the heart of our current economic malaise.I previously explored the implementation of Bastardized Keynesian Theory funded through the expansion of government debt. Bastardized Keynesian Theory is not limited limited to governmental debt, though. Our politicians have turned to expanding private debt through government incentives to fund their Keynesian economic pump. Under Bastardized Keynesian Theory it does not matter who takes on the debt that puts money in the hands of those who spend; all that matters is that money gets into the hands of those who fund economic activity.
Both parties participated in this private-debt funded faux growth and each pointed to Keynesian Theory as validation for their leadership.Democrats did so with a never ending train of government "affordable housing" programs which incentivized private debt, and more importantly, from a Keynesian perspective, put money in the hands of spenders. The wealth generated by the resulting housing boom did not culminate in equity over time. Instead it stimulated economic growth in consumerism, in vacations and similar non investment as people cashed in on their home's equity.
Conservatives for their part pointed to Keynes as well, albeit in a more convoluted fashion. Ask yourself what happened when the push for Keynesian spending through Fannie/Freddie came in conflict with existing regulations. The answer is that those regulations disappeared in a puff of Conservative Keynesian logic called "financial deregulation". This frees financial institutions to more efficiently implement the government's desire for all of us to spend more trough any number of financial magic tricks that really boil down to riskier loans to get more money in people's hands. Through deregulation Conservatives had unwittingly set the Democrat debt dogs of incentivized lending loose on the American people.
Suddenly more people had more money and spent more money - stimulus - but none of this stimulation showed up on the federal budget, instead it now weighs directly on the finances of the citizenry. End result - A privately funded stimulus.
Liberal Keynesian validated incentives and Conservative Keynesian validated deregulation worked in concert to lead to our housing bubble.
Unfortunately, by removing financial regulations Conservatives had upset the Democrat's delicate governance of home lending. Had the regulations not been removed the housing market may not have bubbled over so quickly. Conversely, I believe deregulation would not have been detrimental to the housing market had it not been for the Democrat's incentivized lending programs. It was as though a dam of regulations was holding back a ravenous river of incentivized lending.
Currently each party accuses the other of causing the housing crash. Democrats point to financial deregulation while Conservatives lay blame on government intervention in the housing market. The reality is that each party is tugging at different parts of the same animal -- Bastardized Keynesian Theory.
For the American people it is called impoverishment.
End of Part 2 of 3
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