True Keynesians: We Must Spew Out Lukewarm Keynesians

All makers of contemporary economic policy are slaves of the defunct economist John Maynard Keynes. Now their manifest failure has forced them to take drastic measures that include everything except admitting that the Keynesian consensus is wrong. 

I and a handful of fellow deviants spend a lot of time documenting how mainstream economic discussion is set up to exclude pro-savings arguments, doubts about the wisdom of deficit spending, critiques of the blind pursuit of low interest rates, and other heresies. 

To give just one recent, silly example, here's a discussion of the Obama Administration's effort to "rescue" the economy, in which neither CNN's Candy Crowley nor lame-duck chairman of the Council of Economic Advisers Austan Goolsbee can be bothered to ask what any owner of a private business would have had to think about right up front: Is it possible that the money we’re spending is just going to waste? 

Counting up all the rescue packages of the Bush and Obama Administrations and two rounds of quantitative easing, the United States has now spent about $2 trillion in bailouts and created $2.9 trillion in new money, yet most economic indicators are lower than they would have been according to the worst-case scenarios that were made public when those spending decisions were approved. 

A failure of that magnitude needs some heavy PR management. Last year I documented early instances of the "true Catholic" argument: Keynesians claiming that today’s Keynesians are not being true to Keynes (who would have made a bigger or smarter stimulus or some such thing). 

Several times since then I have invited advocates of intervention to name a dollar figure they would consider sufficiently stimulative. I’ve even thrown out a number: $5 trillion to $8 trillion, which would match the decline in household net worth and arguably replace the effects of the “demand-side shock.” I didn’t imagine Paul Krugman had me on speed-dial, but it’s notable that nobody has accepted that challenge. 

The “true Keynesian” argument continues to stink up the public discourse, however. Most recently is this ALDaily.com-recommended jeremiad against the Obama administration’s “false Keyensians” by James K. Galbraith, the confusingly named son of the famous defunct economist John K. Galbraith. For better or worse, here’s the state of the art in contemporary Keynesian denial: 

And so the False Keynesians went home—Romer back to Berkeley, Summers to Harvard. The reputation of Keynesianism is just part of their collateral damage.

After the midterm elections, all attention turned to the victors’ agenda: the federal budget deficit, the public debt, spending cuts, and the cause of “entitlement reform”—our Orwellian phrase for slashing Social Security and Medicare. How can we understand this march of budget-cutters and free-market fundamentalists? Where do their ideas come from? Unlike the Reagan revolutionaries of 30 years ago, they have no academic messiah, no newspaper apostles, and, so far as one can tell, no sacred text. “Monetarism” plays no role, nor does “supply-side economics.” They are not really “Austrians,” though some claim as much. 

There's a lot I can't exactly respond to because of the 1990s-freestylin' nature of Galbraith’s writing. I had to reread several passages to figure out whether Galbraith was parodying somebody else's ideas, doing an unironic LaRouchian rant against marginal utility, or something else. Galbraith writes that something is "redolent of the Social Darwinists’ view of the divine right of the rich to rule," which is several platitudes too far. Darwinism doesn't argue for a "divine right" to anything. Galbraith may be thinking of believers in natural aristocracy or something like that, but in practice he's just mixing phrases in a sloppy way. His dead writing also includes vague technothriller blurbs…

In 2009 we realized it. But our computers, and the technicians who ran them, overruled us.

…and phrases that aren't so much non sequiturs as anti-sequiturs: 

And if Keynes were in charge, then the captains of industry could not be.

But Galbraith also makes claims that are relatively straightforward and thus easily refuted: 

In [business lobbyists’] version of the story, interference by government is a choke-leash on the animal forces of free-market dynamism.

If you can’t remember any business lobbyist claiming anything about unleashing “animal” energies, that’s because this is a notion that originated with Keynes himself. (To get a sense of where Galbraith stands on the regulatory-capture question, consider that he holds up corporate welfare queen Jeffrey Immelt as a specimen of free-market fanaticism.) 

Galbraith is equally sloppy in delineating schools of thought among the people he attacks: 

Ben Bernanke and Christina Romer, both of whom had reputations as experts on the Great Depression, were closer to Milton Friedman’s view of that matter—that the Fed did it—than to Keynes.

This is partly true with regard to Romer, whose academic work made the argument for monetary stimulus as effective and fiscal stimulus as ineffective. However, again as we have pointed out, Romer became a vocal advocate of fiscal stimulus while running the CEA, even going so far as to posit an impossibly precise multiplier of $1.55 for every federal dollar spent. 

Bernanke’s view of Depression-era monetary policy, however, is markedly different from Friedman’s. As I discussed the other day, the two views split on the question of whether bank failures in the thirties should be seen primarily as liquidity problems or solvency problems. It's an interesting question. I believe a clever economist might be able to take this comparison of Bernanke’s and Friedman’s views and argue that of the two, Friedman had a more “pure” Keynesian read. I don’t know whether Galbraith is a clever economist, but by lazily conflating the two, he just ends up wrong. 

Maybe I’m setting too high a bar of accuracy for what is really intended as a rant. But facts matter even when you’re ranting: 

Meanwhile, in the halls of Congress, as well as at Westminster and in Frankfurt and Brussels and Berlin, the ghosts of Smith and Ricardo mutter on about unproductive government and how savings create investment. So they cut and cut, and when that doesn’t work they call for more cuts. 

What has been cut? Federal spending is higher this year than it was in 2010. It was higher in 2010 than it was in 2009, higher in 2009 than in 2008, and so on. More to the point, we don’t have a budget. The United States has not had a signed budget in more than a year, so in fact there is not a single line item anybody can point to as having been reduced or eliminated. If we were spending less, why would we need to keep raising the debt ceiling? 

This is what is so terrifying about the practical failure of the Keynesian consensus: The fish don’t feel the water. We barely even have the language to point out the reasons for the failure, let alone to suggest that some truth might be found outside the consensus. 

I don’t expect or receive any quarter when I try to point out that an economy where you can’t pay an employee whatever the two of you agree to, charge whatever interest rate you can get a borrower to pay, or relocate an airplane plant without getting the government’s permission is not a true free market. So I shed no tears for Keynesian fundamentalism. No doubt there are soi-disant Keynesians out there who have lost the Master's true message, just as there are followers of Jack Chick and L. Ron Hubbard who misinterpret their respective leaders' teachings. That's tough luck. I’m just glad to see the economic quacks are starting to fight among themselves. 

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Achtung Coma Baby||

    Is "entitlement reform" any more Orwellian than "Social Security Trust Fund"?

  • ||

    Several times since then I have invited advocates of intervention to name a dollar figure they would consider sufficiently stimulative

    You're not doing it hard enough!!!

    There will be no reality here, Tim. There are no consequences for these people, so there is absolutely no motivation for them to change their way of thinking. If I gave you unlimited money with which to gamble, and you kept saying "hit me" when you had blackjack, why would you learn a thing?

  • ||

    "I didn’t imagine Paul Krugman had me on speed-dial, but it’s notable that nobody has accepted that challenge."

    I accept your challenge. The government must distribute 9 Trillion by issuing 70 troy oz. of gold to each US citizen who acutally paid some federal income tax in 2010. Recipients may elect to accept any portion of their payment in cigarettes or cask-aged bourbon whiskey. That oughta get this thing going.

  • Joe R.||

    Recipients may elect to accept any portion of their payment in cigarettes or cask-aged bourbon whiskey.
    Bourbon, by definition, is aged in new charred oak barrels. The Department of Redundant Redundancy has been notified.

  • ||

    If we were spending less, why would we need to keep raising the debt ceiling?

    We could be spending less but still have a deficit, which would mean the debt would still be increasing toward the ceiling.

  • Mercurus||

    Paying interest on debt is still spending...

  • Apogee||

    We could be spending less

    Without a budget specifying cuts, how exactly would this be possible?

  • ||

    All I'm saying is that

    spending less ==/==> staying below debt ceiling

  • MNG||

    Oh my Lord, first libertarians cast stones at the union leader for Godwinning, now they cast stones at people who respond to cases of their economic dogma not having the predicted effect by saying they were'nt "really" tried enough? All the while polishing their glass walls, floors, roof, etc.

  • Juice||

    Hmm. Your post has convinced me that Keynes was right all along.

  • MNG||

    "That wasn't REAL deregulation;" "Well we never had a TRULY free market;" "Those cuts didn't go NEARLY far enough"

    Next we'll see hearty criticisms of people throwing around hyperbolic accusations of slavery...

  • Juice||

    It's all very odd. It's almost as if individual human behavior can't be accurately predicted.

  • Hugh Akston||

    It's not the Model's fault. The Model is perfect. Life would rational, ordered, and grand, if only people adhered to the Model.

  • MNG||

    This is hilarious thing from an Austrian, who think economic science is "deductive."

  • Hugh Akston||

    I'd love to respond to this, but I'm really not clear on what you're trying to say about me.

  • MNG||

    Austrians make predictions all the time about what humans will do when faced with this or that economic policy, and they base their predictions on deductions based on axioms about humans behave. At least non-Austrian economists admit their predictions are probablistic.

  • yonemoto||

    yeah, except they use incorrect priors, forget that correlation != causation, and see trends where none exist, and engage in a dick-measuring contest to see who can construct the gnarliest function to take a derivative of. The concept of dimensional analysis is totally foreign to economists so you wind up with functions with, for example a term in the denominator of a fraction with the term as a sum element on top, and in a fucking exponent.

    Never mind that in any relevant range that shit is linear. Seriously, have you ever held math review sessions for economists? It's fucking infuriating.

  • yonemoto||

    yup, minge, it's science all right.

    http://www.econlib.org/library.....re_037.jpg

  • Hugh Akston||

    Oh, neat. Couple things though:

    1) I'm not Austrian, I'm Californian. Though in my heart, I will always be Coloradoan

    2) When Carlyle called economics the dismal science, he was only half right.

  • MNG||

    There's no reason why one shouldn't adopt the methods of science when studying empirical events, including what people do.

  • Unit 731||

    We agree!

  • ||

    The scientific method is out the window when we're talking about systems of human beings, since experimenting on them is impossible or unethical.

  • yonemoto||

    just get them to sign informed consent forms. Or even better, a social contract.

  • JoshInHB||

    It's not the Model's fault.

    Indeed,

    We just need to create a New Man for our utopia.

  • Hugh Akston||

    Kensyian economics has the same problem as Kantian morality: people are just not good enough to live up to it.

  • yonemoto||

    Uh, also the fucking over the poor part.

  • MNG||

    That leaves your side quite up a tree as well. You can't say stimulus won't work or tax cuts will foster development or whatever if what you say is true, because, hey, who knows how people will react, we can't predict their wacky behavior.

  • yonemoto||

    wrong. I think only the most idiotic of libertarians (and plenty of them there are) will say government can NEVER spend correctly. What most libertarians do say, is that government far more often than not wastes money, far more often than not distorts markets towards unfortunate ends, and most certainly creates unintended consequences that it is morally questionable to expect individuals to bear (even fractional) responsibility for.

  • Amakudari||

    It's more that a better way of fulfilling people's wants is to leave the decision up to them, and the more top-down a setup is, the less likely it will efficiently meet those wants.

  • yonemoto||

    Forget more efficient disbursal of wants, the only MORAL way to fulfill people's NEEDS is from the bottom up.

  • Apogee||

    Fuck other people's needs. The only needs that count are the needs to collect cold hard cash from others.

    The reasons can be morality, science, whatever the fuck works.

  • Butts Wagner||

    Yeah, Austrians may be wrong, but at least individuals get to make their own choices.

    The fear of letting individuals make their own choices seems to be yet another unknown prediction. Maybe we're wrong and a truly free market will result in a Comcast-led autocracy in which we all turn and face our living rooms/cable boxes 4 times/day and say 5 Comcastic prayers about how awesome giant corporations are each time.

    I'm hoping for an InBev Coronation.

  • ||

    Maybe it will. Now, who would be threatened by that future?

    Hmmm ... let's see the things we presently stand and face and say prayers to maybe?

  • ||

    You can't say stimulus won't work or tax cuts will foster development or whatever if what you say is true

    MNG Austrians may be wrong....this does not change the fact that Keynesian are wrong.

    You don't need an opposing hypothesis to point out that a predicted result, like say stimulus will keep unemployment below 8%, did not produce.

  • Apogee||

    You don't need an opposing hypothesis to point out that a predicted result, like say stimulus will keep unemployment below 8%, did not produce.

    You just need people like MNG to ignore and distract from that fact to ensure that these failures continue.

    Why?

    Because MNG would like the ultimate theory of economics to enable looting others' pocketbooks, whatever the explanation needs to be.

    That's the only difference in economic theory that most of these types care about.

  • MNG||

    "MNG would like the ultimate theory of economics to enable looting others' pocketbooks"

    What a simplistics, assuming goofball you are. I pay far more in taxes than I get stuff from the government. I don't want my wallet looted anymore than the next man.

  • sevo||

    MNG|6.19.11 @ 9:21PM|#
    "I pay far more in taxes than I get stuff from the government. I don't want my wallet looted anymore than the next man."

    But you're more than willing to have others' wallets looted for your fantasies.

  • Apogee||

    But you're more than willing to have others' wallets looted for your fantasies.

    No response, MNG?

    Then how about this 'simplistics' question: If the stimulus failed to keep unemployment below the 8% mark, then why not just save the stimulus money if the outcome is completely unpredictable anyway?

  • MNG||

    It's less about Austrians and Keynesian's being wrong than it is about economics being hard. That last truth should make fundamentalists of both stripes suspect.

  • yonemoto||

    your faulty assumption is that libertarians are Austrian fundamentalists.

  • ||

    And you can't say for sure whether opening a cattle ranch on the moon won't help the economy either. So you have no grounds to oppose spending tax money on lunar ranching.

  • Amakudari||

    "That wasn't REAL deregulation;"

    It's absolutely not. There's nothing libertarian about spending trillions of dollars -- much less $1 -- to bail out banks.

    Everything exists on a spectrum. Keynesians are complaining that it was maybe 90% of the way there, which was not enough. Plus an extra trillion, things would be fixed. No one doubts the FRB, the merits of countercyclical spending, that the problem was liquidity-related, that the issues were on the demand side, etc.

    How far off from libertarian banking do you think we are?

  • yonemoto||

    Once again, your myopic conflation of one libertarian voice as the voice of all shows.

    Not all of us make the claim "that wasn't REAL deregulation". For example, I claim that the end of glass-steagall merely served to catalyze the collapse of the economy of lies that we were living in pre-2008. It would have happened anyway; and as an advocate of ripping the bandage off quickly, I think that the end of those regulation served a noble purpose.

    I would rather my banks not engage in speculative investment without my permission (especially using loans granted to it by the federal reserve), but if they want to do it, it's silly to keep them from doing what would otherwise be a legal activity.

  • MNG||

    Well, if you're not one of the many people here I've argued with who like to claim blanketly or axiomatically that all government action/spending is doomed to make things terrible and all cuts are bound to bring great results then my beef is simply not with you. It's the former people then criticizing other groups for being fundamentalists that strikes me as stones from glass houses.

  • yonemoto||

    Yeah, but I basically think ~98% of government action/spending is doomed to make things terrible. That enough to make beef with you?

  • yonemoto||

    plus or minus 2%.

  • Amakudari||

    What about the stimulus was not Keynesian? They spent several trillion dollars to stimulate demand and it didn't work. At all. And some of the things it promoted, like "shovel-ready projects," are almost perfect examples of the broken window fallacy and Keynesian thought:

    If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

    Government spending is 40% of the damn GDP, almost all of it on things no libertarians support. Banking is subject to an extraordinary amount of regulations by agencies from the FDIC to the OTS to the OCC to the HUD to the FRB to the etc. We have a central bank and monopoly issuer of currency. Where have libertarian solutions been tried and failed in the current crisis?

    It's one thing for an economic view that's out of the mainstream -- the dominant fiscal conservative ideology is monetarism -- to claim it hasn't been tried and another for the most dominant ideology to claim it hasn't been tried.

  • MNG||

    I'm actually no fan of the recent stimulus, but several retorts come easily to mind:

    1. It may have prevented a further decline while not reversing it (similar claims were made when Bush II's tax cuts seemed to do little to reverse things)

    2. A big chunk of the "stimulus" was tax cuts v.7.0

    But my overall point is that it is indeed something to see libertarians criticize Keynesians for saying "but they didn't do it far/really/hard enough." That line is used so much by folks around here in defense of this or that market fundamentalism that you guys now own it via adverse possession or something...

  • MNG||

    BTW-my preferred plan would have been something like that proposed by Robert Reich, a payroll tax cut eliminating payroll taxes on the first $20,000 of income, and making up the revenue loss by applying payroll taxes to incomes above $250,000.

  • yonemoto||

    no worries, you will still continue to fuck over the poor by inflating away any hopes of their saving.

  • Amakudari||

    Interestingly, the tax rebate part of the stimulus was one of the most weakly stimulative. People realized they wouldn't get it next year, and so for the most part they saved it.

    For the wealthy, they've actually kept spending.

    Keynesians like things like food stamps because they have to be spent, but wound up unhappy about the rebate checks because folks were allowed to save them. IIRC they loved China's plan because people had a fixed period of time within which to spend their checks, otherwise they would lose them.

    I'm not going to discuss the merits of saving versus consumption, just that Keynesians here would pursue those policies to stimulate consumption.

  • yonemoto||

    stimulate consumption! Fuck the environment! You HAVE TO BUY crap chinese trinkets with fraudulent images on the box. It's okay. it's gonna be a gift anyways, and dad won't use it after father's day. It's the thought that counts!

  • yonemoto||

    stimulate consumption! Fuck the environment! You HAVE TO BUY crap chinese trinkets with fraudulent images on the box. It's okay. it's gonna be a gift anyways, and dad won't use it after father's day. It's the thought that counts!

  • yonemoto||

    so great the squirrels duped it.

  • MNG||

    I won't argue that the Obama tax breaks were not done stupidly.

  • yonemoto||

    fuck that shit I'm not talking about tax breaks, I'm talking about inflation.

  • Amakudari||

    1. It may have prevented a further decline while not reversing it (similar claims were made when Bush II's tax cuts seemed to do little to reverse things)

    That doesn't jibe with the history of recoveries, though. It's far more likely that it was counterproductive.

    And I won't defend Bush's tax cuts because they were merely replaced with debt issuance. Spending continued upward during his term. (In any case, I'd argue for lower spending for long-run benefits, as there's no doubt that you can stimulate GDP by, say, burning every other person's house down and forcing them to rebuild.)

    And tax cuts that are funded by government debt issuance are Keynesian in nature.

  • Mr Whipple||

    OK. I've had about enough of this shit. I have two hammers. One for each hand. I'm taking off my clothes as I'm typing. I'm going to drive to the nearest mall or movie theater, or anywhere where there is a large parking lot full of cars. I am going to start smashing windows and jumping up and down on the hoods of cars and yell, at the top of my lungs:

    BROKEN WINDOW FALLACY. ANOTHER JOB CREATED!!!

    I expect to be on serious anti-psychotic drugs by morning. Sure, I'm the one that's crazy.

  • Mr Whipple||

    As the police wrestle me to the ground and handcuff me I will scream, "you can't stop me from creating jobs you fascist bastards!"

  • Brett L||

    I've got $100 towards your defense if you'll work "fuck off, slavers" into your sworn testimony.

  • MNG||

    You know what I like, when you call people market fundamentalists they often break out some little parable like this. That really refutes the charge of having a religious outlook...

  • Mr Whipple||

    I don't know what a market fundamentalist is. Sounds to me like a feeble attempt to provoke an emotional response.

  • Apogee||

    I like how MNG never directly answers the complete refutation of his economic theories.

    It's always about distraction.

  • Juice||

    What is that quote about never being able to convince a man of the truth if it's his job to think otherwise?

  • ||

    I don't know the quote, but I'm sure it was either Mark Twain, Abraham Lincoln, or Albert Einstein.

  • ||

    Or Ben Franklin or Oscar Wilde.

  • Jerry||

    Admittedly, Keynes is the one you want to party with.


    Bring lube. Lots of lube.

  • PantsFan||

    Is lube the responsibility of the pitcher or the catcher?

  • Butts Wagner||

    What does the contract say? Ultimately, it's up to the pitcher and catcher to know their own needs separately and come prepared on their own. If it's Keynes, I imagine the FDA and OSHA will require lube to be supplied by the pitcher for safety of those catchers who are too poor and oppressed to know whether they need lube or not.

  • bosty||

    definitely catcher, under the same theory that birth control is 100% a woman's responsibility

  • yonemoto||

    mainstream economic discussion is set up to exclude... doubts about the wisdom of deficit spending

    Fuck that, bitches. The 14th amendment makes it illegal to criticize deficit spending. Y'all are breaking the law.

  • Irresponsible Hater||

    Cavanaugh complains: "There's a lot I can't exactly respond to because of the 1990s-freestylin' nature of Galbraith’s writing. I had to reread several passages to figure out..."

    Shit. Just. Got. Meta.

    /Respek

  • ||

    Wait...

    Is Tim of all people making that argument!?!?!?

  • I, Kahn O'Clast||

    I suspect Keynes would be sickened by the mischaracterization of his life's work. Yes a small sliver did advocate counter cyclical spending policies ... but now that's all he's remembered for. Even monetarists who doubt that portion of his advocacy still agree with the other 90+% of the models he created. Austrians have some pretty neat ideas, but few numerical models and even fewer proofs. Their complaints about Keynes seem similar to Tom Cruise's complaints about psychotherapy. (BTW his name is Tom Maypother... my first wife went to High School with him)....

  • yonemoto||

    But seriously, Tom Cruise's complaints about psychotherapy are largely correct, though.

    The problem with keynesianism (and psychotherapy) is that they're both products of 'scientization' where you take certain superficial forms of science (using numbers, e.g.) and try, largely successfully, to parlay those forms into a semblance of objective authority and truth.

    Hell, I'm a biologist, and I pasted above my desk the following picture. Just to remind me, I'm not good enough. If only economists had such humility about their craft (I'm not humble about much else).

    http://pics.livejournal.com/so.....00951b.jpg

  • I, Kahn O'Clast||

    Even as an economist I am doubtful that economics is a true scientific field. It's a form of social studies or some such. To rank it among the hard sciences would be a joke. But even among softer fields there are levels of seriousness, use of data, and serious peer review. It's not rocket science, but it is not based on the zodiac.

  • Jerry||

    Yet, you demand numerical models?

  • yonemoto||

    Ok, then. Print the damn photo and put it above your desk. Pics or it didn't happen.

    Here's mine.

    https://picasaweb.google.com/111337360985340071974/CeilingFeynman?authkey=Gv1sRgCMi0p7aB3fygWA#5620096089175456306

  • ||

    Well, macroeconomics is never going to be a full fledged science as it's impossible (or at least immoral) to test macroeconomic hypotheses with experiment, and there are too many confounding variables for observations to be an acceptable substitute (as in astronomy).

    That said, Austrian economics is not based on the Zodiac either. It's more comparable to speculative cosmology if we had to choose an astronomy-related comparison.

  • yonemoto||

    Dude, tulpa, there are austrians that certainly go way too far with the praexiology.

    I like to think of the extent of austrian usefulness to prove the existence of counterexamples, corner cases, etc. Since morality is to a large degree an absolute, axiomatic system, Austrian praexiology is useful to show that unintended consequences can be very dire.

    There are certain Austrian fundamentals, though, that are by necessity universal. My favorite one is rothbard's quote:

    " From Aristotle to Marx, men have mistakenly believed that an exchange records some sort of equality of value—that if one barrel of fish is exchanged for ten logs, there is some sort of underlying equality between them. Actually, the exchange was made only because each party valued the two products in different order."

  • yonemoto||

    ...I also happen to like the ABC, but the emphasis on it being driven by the Fed goes too far and many Austrians suggest that it's created by the fed, which, is ludicrous. You will have an ABC even with a full reserve banking system.

  • alan||

    Von Mises noted that it could and has occurred in a purely private banking system. Rothbard wrote an entire book about the 1848 crash as a private phenomenon. And of course the Tulip bubble! So where some get that idea, and I've seen it expressed too, I have no idea. The private market is a world more efficient at liquidating malinvestment, of course, and that is where the real difference (as well as who bears the moral hazard, responsible parties or the public) lies.

  • yonemoto||

    I think hayek was responsible for beating the drum that the ABC was exacerbated by the Fed (probably true) and it's a common thing for Ron Paul to utter that the business cycle is a creature of the Fed.

  • Mnemone Jones||

    It's more comparable to speculative cosmology if we had to choose an astronomy-related comparison.

    Before telescopes were invented, perhaps.

  • yonemoto||

    this is what keynesianism aspires to be, but sadly, the keynesians don't understand the concept of statistics of small numbers, or independence of observations.

    http://upload.wikimedia.org/wi.....iagram.png

  • ||

    I love that picture.

  • Otter||

    "Austrians have some pretty neat ideas, but few numerical models and even fewer proofs."

    I don't claim to be an expert on Austrian economics (or, indeed, on anything other than drunkenness and fornication), but mightn't the lack of econometric models and proofs be a feature rather than a bug? If you don't believe accurate predictions are possible, why play that game? Cf. N.N. Taleb's argument in The Black Swan that a bad model can be worse than none.

  • yonemoto||

    it's disappointing that you are not an expert on thumping seashells on your chest.

  • Otter||

    I agree. Sounds like a fun pastime. My handle is an allusion to Animal House, but I could do worse than to be confused w/ a seafood-loving marine mammal.

  • Cytotoxic||

    I'd just like to point out that the Keynesian wet dream has already occurred. It's called China. They stim'd their economy to the order of 12% GDP. And it resulted in massive malinvestment, a lot of inflation, and a gargantuan property bubble that may now be bursting.

  • sevo||

    Dunno. China is a complex case. Not doubt they're going to pay for that distortion, but when is another matter.
    Since no one can currently own land, they have a *HUGE* un-monetarized asset base that can be monetarized to bail them out of pretty serious trouble. Same is true of the Chinese personal savings; there's a ton left from the time when you had nothing to buy so you had to 'save' it.

  • ||

    How can we understand this march of budget-cutters and free-market fundamentalists? Where do their ideas come from?

    Oh noes! They don't have a textbook!

    They don't even have fellowships in prestigious academic institutions. They aren't Top Men.

  • ||

    Is it possible that the money we’re spending is just going to waste?

    Nonsense. Very smart people in the federal government are deciding what to spend it on.

  • ||

    Kudos. Money spent keeping those in power in power is hardly a waste.

  • J||

    "Several times since then I have invited advocates of intervention to name a dollar figure they would consider sufficiently stimulative."

    I read an interview or bio once where Krugman said he wouldn't go much further than FDR did in the new deal, because, he's all for free markets. After all, without FDR's massive spending, the Great Depression would've been much worse.

    Of course, saying you wouldn't go much further than the New Deal isn't the same as putting a number limit on today's spending.

    I'm guessing there isn't much of a limit on how much Krugman wants to print or spend, but if he does reach one, it will be after the dollar collapses or a Republican is in office and doing the spending.

  • sevo||

    "How can we understand this march of budget-cutters and free-market fundamentalists?"

    Didn't know Rand Paul was leading a parade.
    From here, he looks a bit lonely pointing out it's not a good idea to borrow for day-to-day expenses.

  • alan||

    My God! Those people making public budgetary decisions are NOT professionals!

    That pretty much sums up the argument. No matter the pretty squiggly lines and Greek letters you press into service, it is not a science, it is an attitude that serves a class interest. For every positive correlation between policy and theory there are dozens going in the opposite direction. I saw this in study after study of IMF policy going back several decades, and there really was no other area where Keynesian policy was applied so good and hard because the natives of autocracies have even less say about public policy than American voters.

    I suspect that centuries down the line that this focus on the public budget as the center piece of all things economic will be regarded as a peculiarity of our time and the triumph of the class interest of a managerial elite rather than the dawn of an era where social sciences became predicative.

  • sevo||

    "After all, without FDR's massive spending, the Great Depression would've been much worse."

    See how the Keynseians make such testable predictions?
    BTW, I was told that if I *didn't* vote for Obama, we'd have a long recession. Well, I was told right.

  • J||

    "BTW, I was told that if I *didn't* vote for Obama, we'd have a long recession. Well, I was told right."

    I see what you did there. It also contains an element of blaming those who don't support him.

  • sevo||

    J, it's a riff on the old "If I voted for Goldwater, we'd have a war" joke.
    Suggest sarcasm meter reset.

  • The Real Choney||

    I thought it was clear I was going along with your sarcasm. Suggest sarcasm meter reset.

  • J||

    Damnit, I meant to post as J. Now, I'm outed as a Choney. Not my best day on H&R threads.

  • sevo||

    oops, sorry.

  • J||

    I wish there were a way for sarcasm to come through in writing WITHOUT having to use emoticons. One day, maybe. I can dream.

  • ||

    "It didn't do what we said it would do, but if we hadn't done it it would have been catastrophically worse!"

  • ||

    What are those models of Keynes, exactly? And exactly how are those models correct?

    Merely because monetarists agree with those models, however few there are, outside of agreement made by monetarists, does not mean those models of Keynes are correct.

    Merely typing the number 90% doesn't mean anything.

    Monetarists don't get money, credit, banking and central banking.

    How do we know this? They believe, falsely, of course, that inflation means a rise in the fake, conjured monolithic price level.

    A rise in prices reveals either inflation (the effort to expand revolving credit and non-revolving credit issues by commercial banks) or money accretion (new notes and coins joining circulation of extant notes and coins), which arises from demand to hold cash.

    While true that money accretion typically results from inflation, sometimes money accretion arises during government debt monetization (so called quantitative easing) when central bankers give checking account credits to government agents in exchange for government debentures.

    Did you want to talk about money and banking I, Kahn O'Clast, or were you trying to make chit-chat?

  • ||

    The problem with Keynesians is they think money is wealth. Money is, after all, just a convienent tool to exchange wealth.

  • Butts Wagner||

    The problem with Keynesians is they think money is wealth. Money is, after all, just a convienent tool to exchange wealth.

    I would argue that this is a problem a lot of people have.

  • newshutz||

    It's a specific instance of the general human tendency to confuse a symbol for that which it symbolizes.

  • ||

    Meanwhile, in the halls of Congress, as well as at Westminster and in Frankfurt and Brussels and Berlin, the ghosts of Smith and Ricardo mutter on about unproductive government and how savings create investment. So they cut and cut, and when that doesn’t work they call for more cuts.

    Haven't I been reading that the governments that refused to bail out their banks (Iceland) and have been implementing austerity budgets (England, Germany) have actual been getting pretty good results?

  • Amakudari||

    While Greece, even though it's been receiving tons of backing (although not as much recently), it's still in the gutter.

    Apparently throwing money at systemic issues doesn't cause them to go away.

  • yonemoto||

    Here is my analogy:

    Let's say I'm an alien investor. My company has given me 2 trillion spacebucks to come to the earth and recruit talent for our company. I arrive here and find out that the technological state was overestimated. Spending any money on this planet to go to R&D a better warp drive is stupid, because quite frankly the talent to do that doesn't exist. Would it then be wise for my backers to instead give me a 20 trillion spacebuck leash instead? Hell no, because that money isn't going to change that the planet is chock full of scientific ignorami.

  • Contrarian P||

    2 trillion spacebucks! We'll be able to pay off Pizza the Hut! Gimme paw!

  • Cytotoxic||

    England has NOT been implementing austerity, and niether has Germany really unless you count some mild spending restraint as 'austere'. Both are anemic or worse.

  • ||

    Its all relative, Cyto. Compared to the US, those are austerity budgets. Now, have the economies with weak austerity budgets been recovering better, or worse, than the economy with a "stimulative" budget?

  • ||

    Are you an idiot, or just a sloppy writer? You wrote: "If we were spending less, why would we need to keep raising the debt ceiling? " Increases in the national debt are not caused by spending more - or less- than the year before. They are caused by spending more than the amount of revenues coming in.

    When you criticize sloppy writing by others, you really ought to try to not be sloppy with your own writing.

  • alan||

    Increases in the national debt are not caused by spending more - or less- than the year before. They are caused by spending more than the amount of revenues coming in.

    Do you really think that TC is unaware of that and the portion of the spending that is in deficit is not what he had in mind when he wrote the line you quoted? No qualifiers were needed because it is a given, or do you think that the government actually could raise 3.8 trillion to prevent the increase in the debt limit from being a phenomenon divorce from spending, and do so the next year and the year after wards? Now, that would truly be idiotic.

    Spending increases from 2.1 trillion to 3.8 trillion in eleven years. Revenues increase from 2.1 to 2.2 trillion. Nope. No problem on the spending side of that ledger!

  • ||

    TC did claim that there have been no real spending cuts to date. My point is that there could be hundreds of billions of real cuts and, if there are no revenue increases, we would still have to keep raising the debt ceiling.

  • Tim Cavanaugh||

    Yes, a fall in revenues could cause debt to rise if spending were reduced but not reduced enough to make up the shortfall.

    In reality, however, total outlays were higher in 2010 than 2009, 2009 than 2008, and so on. You could have looked that up in less time than it took to shit your pants in public.

    The '08/'09 fall in revenues has been arrested and tax hauls are rising again.

    Really, it's not hard to look this stuff up.

  • Some Guy||

    A "True Keynesian" would have demanded that we run a surplus in the good times to pay for stimulus in the bad times.

    So when that happens, maybe I'll listen to them.

  • ||

    This is the argument that I heard made by an Australian economist some months back on Peter Schiff's show and what I seem to remember from college. Schiff's guest argued that this is why Keynesian intervention had generally worked in Austalia and was not working here.

  • ||

    States look to Internet taxes to close budget gaps

    When Texas lawmakers took up such a bill, most of the testimony came from owners of small businesses. Gregg Burger, the general manager of Austin's Precision Camera, complained that customers come into his store to inspect the products, but then go online to buy them to avoid the sales tax.

    "We get people all the time who come in, talk to a salesman for 15 minutes to half an hour ... and then go, and we know they are going to buy it online because they can save money. In theory, they are stealing our time," Burger said. "We're losing at least 15 percent to online, out-of-state, so we're losing anywhere between $3 million and $5 million a year in business."

    Leaving aside Mr Burger's apparent belief that he has a right to a fixed amount of Austin's camera-related spending, and that anyone who enters his shop and doesn't buy anything is "stealing", there is an easy fix for his predicament. Require customers to buy a $5 gift card in order to get a consultation with one of his salespeople, which can be used toward a purchase there if they choose to make one. That would scare off the bait-and-Internet customers and have no effect on people who intend to buy at his shop.

  • alan||

    He would then turn his attention to complaining about on-line product reviews. There is no pleasing a guy like that.

  • ||

    Obvious that you two have never run a business in a competitive industry. In a competitive business it is nearly impossible to survive when your competitors have a 6-8% price advantage by not collecting sales tax. Internet purchases should be taxed just like an in-person purchase.

  • ||

    Bullshit. I live about 15 minutes by car from 2 other states. Like a lot of people around here I but my cigarettes in VT, where they are cheapest, my clothing in MA where it isn't taxed, and big ticket items like furniture in NY where there are big, cheap warehouses. In spite of these apparent inequities which drive my purchasing decisions I have not noticed a dearth of cigarette retailers in MA or clothing stores in NY. Some people will always choose convenience, proximity, or personal service over pure price considerations.

  • ||

    Of course, Leo, that begs the question of why a company that has absolutely no connection to a state should have to collect sales taxes for it.

    And, of course, in most states it is a sales "and use" tax, where you are actually obligated to pay the tax on items from out of state. Of course, nobody does, which should be a clue as to why this is a bad idea.

    Finally, of course, tax policy properly exists only to raise money, not to manipulate the market. If a state is losing business because its sales tax is too high, maybe it needs to cut its sales tax. After all, states lose business because their income taxes are too high. Should we require a uniform state income tax?

  • alan||

    Obvious that you two have never run a business in a competitive industry.

    Random guy makes a hypothesis based on . . .? Nada!?! Well, at least I got a good laugh.

  • ||

    There ARE false Keynesians. But they aren't the people advocating a small stimulus. They are the people making claims like extending unemployment benefits will stimulate the economy.

    What Keynes actually argued for was spending on public works - roads and bridges. He thought that if government took unemployed capital and used it to employ unemployed labor, you could get production back up. Keyword "production". Keynes would not have advocated useless makework or welfare. The whole point was get get people producing something instead of sitting around uselessly.

  • Apogee||

    The whole point was get get people producing something instead of sitting around uselessly.

    Which is antithetical to the whole point of government, the very people tasked with implementing Keynesian stimulus.

  • ||

    This is a good point.

    I'm as hostile to Keynes as the next guy, but during the Great Depression, they were putting unemployed people to work with that spending. ...and we're not really doing that now.

    We may have used the stimulus to help keep state employees from being unemployed for a while, but that's different.

    I should add that I think a lot of what happened during World War II has been conflated with Keynesian ideas too.

    My understanding is that the overwhelming majority of people who were drafted in World War II, didn't go into the military--they were used in factories to supply the military.

    That's part of what made the draft during World War II different from the Vietnam War draft. During Vietnam, they were taking people who had fairly comfortable lives and putting them in rotten situations in Vietnam; but during World War II, getting drafted typically meant going from a pretty bad situation employment wise--to getting paid pretty well to work in a factory!

    This just underscores why what happened during the Great Depression really isn't applicable to what we're going through now. Our economy is so different from what it was in 1929, just because the big one involved an asset bubble bursting too doesn't mean they have much else in common.

    Quite frankly, I think most of what we're seeing in terms of support for Keynesian ideas now is mostly an ideological reaction to the Reagan years.

    Some of these pundits are guilty of the same ideological rigidity they're accusing fiscal conservatives, supply siders and tax cutters of. They're willing to try anything that isn't cutting taxes and spending.

    When you pick your crisis, you pick your policy prescription too. If they wanted to look at asset bubbles bursting and credit led recessions, why look at something from 1929, when there are more recent examples that are probably better approximations of what we're going through now?

    Look at the success and failures of the S&L crisis. Look at the success and failures of Japan in the '90s.

    Look at the Asian Contagion of 1997!

    Why do they pick the Great Depression as the model catastrophe--other than the fact that they want to argue for regulation and stimulus?

  • Invisible Finger||

    I'm as hostile to Keynes as the next guy, but during the Great Depression, they were putting unemployed people to work with that spending. ...and we're not really doing that now.

    Here's the main reason why we aren't putting the unemployed to work on infrastructure fixes like we used to.

    It would be nice to get the unemployed to fill in potholes, patch up broken sidewalks, clean garbage out of the parks and streets, replace burned out street lamps, fix playground equipment. But the public employees unions won't let it happen.

  • ||

    I'm sure that's true.

  • ||

    Exactly. That and the mindset of the people planning the stimulus was "How can we spend as much as possible doing as little as possible, to maximize the number of dollars spent?"

    The entire logic of the dollars-spent-equals-stimulus Keynesians is to *minimize* efficiency. The more inefficient you are, the more "jobs" are produced, and the more "work" there is left-over for other people (i.e. public sector unions) to do. If a road project runs three times over budget and takes five times as long as planned, so much the better - more money spent, more stimulus. Production simply does not enter the calculation.

  • Tim Cavanaugh||

    True, and if I wanted to do a Keynes apologia I'd do exactly that: go through the items in the stimulus package and demonstrate how much of it was not Keynesian stimulus at all but just tiding-over money for the continuation of government operations. I'm surprised Keynesians haven't been making that case. (I think der Krugger may have made it at some point.)

  • ||

    I'm pretty sure Kurgman was/is on the "UI = Stimulus" side.

    The thing is that the false Keynesians really are "monetarists" in the sense that they think simply expanding the money supply and tossing dollars out of the window will improve the economy. That is effectively what they believe, sicne they don't believe production has anything to do with what makes government spending stimulative.

  • Res Publica Americana||

    How'd you dudes like the story in that "Homefront" video game?

  • cynical||

    You're not tricking me into buying a shitty 2-hour on-rails shooter with some implausible sub-Tom-Clancy plot where your companions do all the hard work. I'm saving my money for Modern Warfare 3*.


    *not really.

  • Invisible Finger||

    I count the days until Barack Obama is shovel-ready himself.

  • Dello||

    In all fairness to Keynes, he DID specifically say to STOP SPENDING once the economy is running again.

    That's the part that government Keynesians never follow.

  • ||

    There are a few obvious cracks in some of their logic too--even if they were following Keynes to the letter.

    I fail to understand why combating the marginal propensity to save is a desirable goal--when the economy is struggling in part due to our banks being starved for cash.

    When our banking system is starved for cash, the Keynesians want the government to step in and prevent consumers from saving?

    That's more than just a little counterintuitive.

  • BR||

    True Keynsians, like John Taylor, blame Greenspan for creating the housing bubble by OVER-stimulating the economy. Even Paul Krugman once recognized that this is the case, although he seems to have forgotten: http://www.nytimes.com/2005/05.....ugman.html

  • ||

    I find an iambic pentameter goes a long way in explaining things.

    They still don't understand, but it "sounds cool."

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Progressive Puritans: From e-cigs to sex classifieds, the once transgressive left wants to criminalize fun.
  • Port Authoritarians: Chris Christie’s Bridgegate scandal
  • The Menace of Secret Government: Obama’s proposed intelligence reforms don’t safeguard civil liberties

SUBSCRIBE

advertisement