The only problem with Keynesian theory is that it is completely wrong

The only problem with Keynesian theory is that it is completely wrong, by Steve Saville.

Keynes only advocated temporary increases in government spending as a means of absorbing shocks to the economy, and … he was dead against currency debasement and the creation of structural deficits. The problem, though, isn’t that Keynes’s theory has been applied to an unreasonable extreme; the problem is that the theory is completely wrong. …

If greater government deficit-spending really did act to strengthen the economy during recessions then it would also act to strengthen the economy during the good times. On the other hand, if greater government deficit-spending hurt the economy during the good times then it would also hurt the economy during recessions. The point is that there isn’t one set of laws that applies during periods of growth and another set that applies during periods of contraction.

Secondly, the concept that the government can provide a sustainable boost to the economy by increasing its spending is based on the fallacy that increased consumer spending causes the economy to grow. It causes GDP to increase due to the misleading way the GDP calculation is done, but for an increase in consumer spending to be sustainable it must be an effect of real growth; that is, it must follow an increase in production, which, in turn, must follow an increase in saving. Consumer spending is the caboose, not the engine. …

Recessions occur because of the widespread mal-investment prompted by the earlier expansions of the supplies of money and unbacked credit brought about by the central bank and the commercial banks. As a result of this mal-investment, the economy’s structure becomes distorted such that it is geared to produce too much of some things and not enough of others. Unfortunately, the Keynesians mislabel the distortion caused by inflation as an “output gap”, which they then cite as justification for more inflation and more government spending. To further explain, recessions are symptoms of the process via which an economy attempts to rid itself of the distortions caused by prior inflation and intervention. And yet, in its role as “economic shock absorber”, the central-planning team comprising the government and the central bank tries to sustain the distortions. How can this possibly be beneficial? …

Hyperinflation* and/or a totalitarian state are the inevitable destinations if Keynes’s theories are relentlessly applied over the long term. The reason is that each round of policy mistakes creates the justification for more mistakes, setting in motion a downward spiral that will be inescapable as long as the perceived solution entails more of the same. The only unknown is how long it will take to reach one or both of these destinations.

The world is on that path now, carrying a massive debt load yet with near-zero interest rates in most of the West. Not sustainable.