Occasional X: The foul spirit of political economics (CDXXXVII)

“The core Keynesian error is treating consumption as the engine of wealth. Keynes fixated on aggregate demand, the total spending flowing through an economy, as the variable governments must manage. Boost it artificially, and you rescue the economy. Production precedes consumption. …Government stimulus spending doesn't create resources. It redirects them. When Washington borrows a billion dollars and injects it into infrastructure or green energy, it pulls that capital away from whatever private actors would have funded.” (Handre) Economic debate suffers from the fact that economics is a failed/fake science. Economists do not know what profit is, and consequently, how the economic system works. It's been that way ever since Adam Smith. Both Keynesianism and Austrianism is proto-scientific garbage. The free-market economy runs on profit. Macroeconomic profit Qm is given by the axiomatically correct Profit Law Qm:=(I−Sm)+(G−T)+(X−M)+Yd. The Law implies Qm≔(I−Sm)>0 for Early Capitalism, and it implies Qm≔(G−T)>0 for Late Capitalism. Keynes observed that investment expenditures I were insufficient; therefore, the balance (I−Sm) was too low. He proposed to compensate the shortfall with a bigger balance (G−T) of public deficit spending. Handre's claim that this “pulls capital away from whatever private actors would have funded” is a hallucination because the actual problem was that there never were private actors in the wings to fund private investment I in the first place. In the monetary economy, investment is not restricted by the household sector's saving Sm. If Sm is zero, investment is fully financed by credit and retained profit. In free-market economies, public debt has increased with minor interruptions for 200+ years. So, Qm≔(G−T)>0 is a crucial ingredient of Capitalism's life elixir. Everybody understands that the overriding principle of economics is that macroeconomic profit is greater than zero; otherwise, firms start going bankrupt, and the breakdown begins. All other principles are secondary at best. Neither utility maximization nor profit maximization nor efficient resource allocation keeps the economy above the zero-profit cutoff. Currently, the free-market economy is temporarily saved from breakdown by the deficit-spending/money-creating duo of Treasury/Central Bank, i.e., the State. This means that the premise of legacy economics, i.e., that the unfettered free-market economy is a self-adjusting, self-stabilizing, and self-optimizing system, is axiomatically false. This means that economics is a failed/fake science. Ultimately, this means that the representative economist is too stupid to understand the elementary algebra that underlies macroeconomic accounting. Austrians can't get beyond their microeconomic/ behavioral horizon. Math was never their strong suit. From the fact that the free-market economy thrives on positive/increasing macroeconomic profit, which, in turn, stems mainly from the State's deficit-spending/money-creation, it follows immediately that budget-balancing/debt-reduction turns macroeconomic profit into loss, and this means that the free-market economy cannot dismount from the debt tiger. Because of deficit-spending/money-creation, i.e., of the free lunches for the Oligarchy, the distribution of income/wealth becomes progressively more extreme. As the debt grows, the number of millionaires/billionaires/zillionaires grows exponentially. Since the household sector is taxed for interest, there is an absolute upper limit for the growth of public debt, which is given by public_debt times avg_interest_rate ≦wage_income. Economic problems, though, start much earlier because of other irreducible items in the budget (military, health, etc.) and a not exactly known upper tax-to-income limit. The breakdown of the free-market economy is a systemic inevitability. The important thing is not whether it will happen, but when. The current system can only exist as a nominally growing economy. If debt growth stops, macroeconomic profit approaches zero, and the economy implodes. Austrians correctly observe the lethal weaknesses of the free-market system. Their communicative modus operandi is to simply attribute all economic misdevelopments to the State and to advertize the unchained entrepreneur as the economic savior who is eagerly waiting in the wings. The fact is, behind the wings there has never been anything.

— AXEC (@EgmontHandtke) November 7, 2026