The Keynesian Trap

Welcome to This Week’s Leyendecker View

We cannot solve problems with the kind of thinking we employed
when we came up with them.
– Albert Einstein

A BIG THINK

The Keynesian Trap

The soap opera unfolding in Congress over next year’s spending budget reminds me of an essay I wrote a decade ago. We were coming out of the 2008-2009 recession and were using fiscal and monetary stimulus to jump-start the economy into growth mode. But for some reason, the economy still struggled to grow. In 2009, 2010, 2011 and 2012, we ran budget deficits of over $1T.

At the time, these budget deficits seemed beyond real to most people, especially since in the seven years before then, our annual budget deficits had averaged around $300B. And then all the way back in 2001, we actually had a budget surplus. Imagine that, given that next year’s budget deficit is expected to be around $1.8T.

In its most simple terms, GDP is generally calculated by adding consumption + investment + government spending + net exports. 

Since the US trade deficit has been growing measurably for many years (it was almost $1T in 2022), we have no net exports. Our annual trade deficit actually puts us in an economic hole each year, meaning we need to make it up via consumption, investment and government spending. 

Over the last few years, and projected far into the future, government spending is set to become an even larger driver of our GDP. And of course, government spending also grows government debt, which recently eclipsed $33B. 

Coming out of the Great Depression, British economist John Maynard Keynes came up with the idea that when the economy is slow, all we need is a little government stimulus to jump-start growth. In essence, a little extra juice from government spending could jump-start the drivers of GDP. Government obviously loved this idea, since it handed bureaucrats economic power. And now, since 2008-2009, we are starting to see this power in our economy.

Today, we cannot cut annual government spending. Imagine all those government contracts that would be lost. Imagine all of those companies that would struggle. Imagine all those jobs that would be lost. Imagine all those lives that would be destroyed. Those are voter lives, you know.

Another part of Keynes’s theory was that, once the economy recovered, we could increase taxes to recoup the money the government spent to jump-start the economy. Hear anyone talking these days about raising taxes any time soon? Nope. Nobody is for a tax increase with the wealthy, well-heeled, donor-class lobby ready to pounce.  

So we’re stuck in what I call the Keynesian Trap. Our economy can’t survive today without massive government deficit spending.

THE GOOD NEWS

Crypto may soon be a relic of the past
No more worshiping false idols.

Superconducting breakthrough wasn’t real
Catching liars and cheaters is a good thing.

Chorus grows for Bob Menendez to resign
Outing government corruption is also a good thing.

THE ECONOMIC VIEW

Theme parks slumped this summer
Is it transitory or permanent?

US auto strike widens
Possibly the last battle for workers?

US factory activity
Contracts for 10th month in a row

THE INFLATION BOGEYMAN

Inflation may be coming down.
But prices may still be too high
Owning a car is much more expensive now

Import prices down 3% YOY
Moving in a good direction.

Homeowner insurance rates
May soon explode
Car insurance keeps rising

THE LABOR VIEW

The US has a long-term labor problem.
It’s all about demographics

Government is hiring more people
And paying more, too.

The best advice from a boss
Some good tips here.

MEANWHILE IN EUROPE

If Lufthansa switched to green fuels
It would consume half of Germany’s electricity

The UK government supports green energy
At the expense of jobs.

European economic downturn is coming
As business orders fall.

GLOBAL

Everyone thinks India is a rising star.
But an insider thinks it’s a cluster

Africa is in crisis
Has the West’s counsel misled them?

The Philippines want to save money.
They’ve set up a sovereign wealth fund
World’s largest wealth funds

PLAYING WITH FIRE

The Ukraine war
Has created an arms maker bonanza

Commodity trading companies
Are helping Russia gin up cash

G7 sanctions are not hurting Russia.
They’re finding ample oil customers

EVOLVING GEOPOLITICS

2023 Russian GDP set to grow 2.5%+
Who needs the EU and the US?

Xi courts Middle East leaders.
He cuts a deal with Syria

Getting friendly with Kuwait
Sweden to increase defense spending 30%
Defense industry has wind in its sails.

FINANCE

Private credit gets another new player.
Wells Fargo and Centerbridge team up

Big PE funds
Are pivoting away from PE
As PE faces a wave of zombies

UK pensions pull back from private equity
Is this a trend that will grow?

High-yield debt is in big demand.
Investors like the high rates

REAL ESTATE

Office building values are down.
While insurance costs are spiking

New home sales fall
High rates and high prices.

Atlanta has a booming economy.
But it can’t save its office market

TECHNOLOGY

FTC says Amazon is an illegal monopoly
How about Microsoft, Facebook, Apple and Google?

Is Apple muscling out a start-up?
Isn’t that what giant companies do?

Will robots replace policemen?
NYC is trying one out.

THE CHAT ON AI

ChatGPT can hold a conversation
And it’s not even one year old.

OpenAI’s CEO
Says AI could destroy us
Damn the torpedoes, full steam ahead.

AI is stealing lots of IP
AI is also coming to the workplace
Get used to it.

THE NEXT NORMAL

More Americans want larger families
What’s driving this shift?

The new good time
Is staying home and cleaning house

The indispensable institution
We need more two-parent families.

THE WAR ON CARBON

Techno-climate fixes not living up to the hype
Most carbon offsets are junk science
Is reality starting to kick in?

Lego ditches oil-free bricks
Recycled plastic has a bigger carbon footprint.

Brazil says rich nations
Should pay for global energy transition
They mean like those nations $33T in debt?

THE NEW ENERGY TRANSITION

Countries committed to nuclear power
No US or EU here.

Kerry rails on Asia’s coal growth
Do you think Asia cares?

UN chief chastises the world on climate
Does the UN run countries now?

UK back pedals on ICE sales ban
As economic reality sets in.

THE EV DREAM

China has a stranglehold on EV supply chain
It won’t be easy to wrestle away.

Ford pauses battery plant construction
Is this a union negotiating tactic?

China has cheap EVs.
Why can’t Americans buy them?

THE CHINA SYNDROME

Huawei and China take chip revenge.
US sanctions didn’t hold them back

Sounds like China’s Evergrande is toast
The China real estate disaster continues.

China gets militant in South China Sea
Confrontation is now the norm.

THE WASHING-TONE

Here comes the next migrant wave
Sanctuary cities better get ready.

Dallas mayor becomes a Republican
Will more follow?

Biden establishes a new federal program.
The American Climate Corps

MAKING A BETTER YOU

Do you struggle to sleep?
Here’s a non-drug solution

A good night’s sleep
May be mind over matter

You have an anxiety gene in your brain.
There’s a natural way to turn it off

HOW ABOUT A BREAK

90 animals ranked by eyesight
And how they compare to humans.

The city that puts people above cars
And has been for 24 years now.

Track lightning around the globe
With this cool map tool

TAKE SOME TIME OFF

UNESCO adds several European sites
Some spots to consider for your next European trip.

The world’s prettiest cities in fall
It’s a great time to travel.

Are you a theme park fan?
Thoughts on the best ones out there

SONG OF THE WEEK

“Love And Happiness For You”
Joe Ely
Lyrics are poetry, ya know.

CASTING AROUND THE PODS

Mike Wallace interviews Ayn Rand
A sage with impractical ideas?

VIDEOS OF THE WEEK

Drops of God trailer.
My favorite show of 2023.

Everything to know about garlic
Everything, literally everything.

The coconut business is booming.
Here’s how coconut products get to you

FROM THE HEADHUNTER’S KITCHEN

The best US coffee cities
In case this is important to you.

Cast iron steak
As good as any restaurant.

Best sandwich in every state
Time for a road trip!

THE RANDOMS

Big tech companies may not have a complete monopoly on sales, but do they have too much power over consumers? Their sales only keep growing, and we keep paying a higher and higher price for their products and services.

I guess we will soon find out if the rising price of oil trickles into inflation broadly. Oil is the primary transportation fuel across the world, and its by-products create essential intermediate goods and supplies that go into all manner of industrial and household products.

Do you know how long we’ve been burning things for energy? Since the day humanity discovered fire. You think an infrastructure that old is going to be successfully replaced in a couple of decades?

Lately I’ve been wondering if democracy isn’t already dead because it certainly seems like bureaucracy has taken over.

Or is it the billionaires who have formed an oligarchy and taken over?

Just recently I started wondering if the reason technology seems to have gotten out of control is because we let Microsoft maintain its monopoly 20 years ago.

In case you didn’t notice, Meta just released their newest mixed reality headset for the metaverse. So I’m wondering, does Zuckerberg just not like reality, or does he want more mindless, addicted customers to make him more billions? Maybe he just doesn’t like people.

About 75% of people at a recent green energy conference were wearing long-sleeved shirts and sport coats in the Texas summer heat. This means the venue had to turn down the AC to make it cooler, and people had to use more energy and chemicals for dry cleaning. Does this sound like climate-friendly behavior?

Well, maybe AI is just another new religion.

IN CASE YOU MISSED IT

Adios, Human Intelligence
September 22, 2023

Mexico Blows by China
September 15, 2023