Why Failure Doesn't Discredit Keynes

The American Spectator's Samuel Gregg has a smart piece on why politicians and academics hoping to be hired by politicians can never quite give up on the discredited theories of John Maynard Keynes: 

Keynes himself is often regarded as a rather rebellious figure... Yet despite his iconoclastic reputation, Keynes was a quintessentially establishment man. For his entire life, Keynes moved easily among the Oxbridge-Whitehall elites that dominated Britain throughout the 1920s, '30s, and '40s. Nor was Keynes himself averse to government service. Among other things, this included time as a senior Treasury official, a Bank of England director, and leadership of Britain's delegation to the 1944 Bretton Woods conference -- all of which he did while working as an active Cambridge don.

It's a pattern that contrasts with the path followed by Keynes's free-market critics such as Friedrich Hayek and Wilhelm Röpke. Generally shunned by America and Europe's political and academic insiders, they exerted influence primarily from the "outside": not least through their writings capturing the imagination of decidedly non-establishment politicians such as Britain's Margaret Thatcher and West Germany's Ludwig Erhard.

The story of Keynes's rise as the scholar shaping economic policy from "within" is more, however, than just the tale of one man's meteoric career. It also heralded the surge of an army of activist-intellectuals into the ranks of governments before, during, and after World War II. The revolution in economics pioneered by Keynes effectively accompanied and rationalized an upheaval in the composition and activities of governments.

From this standpoint, it's not hard to understand why New Dealers such as John Kenneth Galbraith were so giddy when they first read Keynes's General Theory. Confident that Keynes and his followers had given them the conceptual tools to "run" the economy, scholars like Galbraith increasingly spent their careers shifting between tenured university posts, government advisory boards, international financial institutions, and political appointments -- without, of course, spending any time whatsoever in the private sector.

In short, Keynes helped make possible the Jeffrey Sachs, Robert Reichs, Joseph Stiglitz's, and Timothy Geithners of this world. Moreover, features of post-Keynesian economics -- especially a penchant for econometrics and building abstract models that borders on physics-envy -- fueled hopes that an expert-guided state could direct economic life without necessarily embracing socialism. A type of nexus consequently developed between postwar economists seeking influence (and jobs), and governments wanting studies that conferred scientific authority upon interventionist policies.

Read it all. The manifest failure of Keynesian intervention always gets us into a discussion about "true" Keynesianism, with implications that if we were actually following the Master's commands we wouldn't be in this pickle. On that subject, Gregg has some interesting quotes from Keynes himself (some of which sound too on-the-nose to be true) expressing his low opinion of his own followers. 

The endurance of Keynes makes sense to me from a Marxist economic-evolution perspective. The transition from feudalism to capitalism may be inevitable, but the king is never eager to give up control of the nation's wealth. What could be more attractive than a theory that proves state control of the economy is not only possible but necessary for the common good — especially when it's backed up by pseudoscientific palaver and equations with Greek letters?  

Reason buries Keynes: Reason/Rupe pollster Emily Ekins on why the First Baron's popular audience is staying away in droves. Me on the establishment media's inability to let go in the face of evidence, on the "true Keynesian" counterreformation, and on the mystery of how economic stagnation goes on more than a year after the "aggregate demand" problem has been solved. (Clue: It's only a mystery to Keynesians.) Plus both parts of Russ Roberts' Oscar-worthy Keynes vs. Hayek series

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  • Mr. Mark||

    Keynesian economists...the "Fire Marshal Bill's" of macroeconomics.

  • H man||

    Somehow seems apropos

    http://www.freep.com/article/2.....dyssey=nav|head

    North Korea is preparing for next year's 100th anniversary of the birth of its founder Kim Il Sung — Kim Jong Il's father. The preparations include massive construction projects throughout the capital as part of Kim Jong Il's unfulfilled promise to bring prosperity to his people.

  • ||

    No one ever got a job in government by telling a politician "that is out of your control".

  • Scruffy Nerfherder||

    But they do get jobs for telling them "That is something you can't be held responsible for"

  • ||

    "A better and peaceful world is possible — a world where people and nature come before profits. That’s socialism. That’s our vision. We are the Communist Party USA."

    Since we're all so very tired of Keynesian bullshit, just read that line to every Keynesian you meet and whose mind you can't change, tell him to just join the CPUSA to see what their crap leads to just before socioeconomic ruin, and feign pity at how awful it must be to suck so much and understand so little.

  • Red Rocks Rockin||

    A better and peaceful world is possible — a world where people and nature come before profits. That’s socialism.

    Uh, no, socialism is using public funds to pay the private sector to build Big Fucking Dams that fundamentally alter nature. Just ask Rachel Maddow.

  • Rachel Maddow||

    ....Big Fucking Dams

    That's Big Fucking Dental Dams right? That was the only dam I was in favor of constructing.

  • protefeed||

    Unfortunately for the rest of us, the dirigiste genie that Keynes helped foster is well and truly out of the bottle. Making matters worse is that it's a type of madness that doesn't immediately appear totally crazy, not least because it appeals to the planner inside all of us.

    It only appears non-crazy because of how it is framed. When put non-euphemistically, it seems a bit whacko:

    "Some academics think people aren't spending enough, and so that is keeping people from producing enough, even though logically consumption only happens AFTER something is produced. So, based on this bass-ackwards view of which has to happen first, production or consumption of what has yet to be produced, these academics think the government ought to engage in massive currency counterfeiting (aka inflation) to trick people into thinking there are more goods and services available than in fact there are, and people will fall for this because they are idiots, and the resulting consumption of savings will put people in such a desperate economic bind that they will be forced to work much harder to get out of this government induced economic hole, thus goosing economic growth. Oh, and these academics think this outcome would be a GOOD thing."

  • ||

    The stimulus was a resounding success. It's just that most people are either too ignorant to recognize it or too evil to admit it.

  • ||

    What's not to like? Unemployment would have been 99%, mothers eating babies, and the infamous cats f*cking dogs.
    Now, enjoy your gruel and louder hosannas to OUR dear, dear, dearest leader EVER!

  • ||

    What failure? The stimulus worked, don't you know that?

  • Paul Krugman||

    Any failure of stimuli is due to not enough of it.

    Also, everything I say is non-falsifiable, and anyone who disagrees with me is an un-academic idiot who hates poor people.

  • Paul Krugman||

    Actually I endorse this nonsense only because it allows me to travel in social circles closed to me before I credentialed myself into the stratosphere and where my blatherings enabled politicians from both factions. If Keynes is ever discredited I'm going to have to go into the evening auto repair program at a local community college. You think I used to get laid regularly before my "prize"!? Fuck no! Okay...maybe the occasional slow witted coed who would blow me for bumping her from a D to a B-...but other than that....please! I'm a furry little nebbish who couldn't get pussy in a womens prison if I was waving a fist full of pardons!

    Keynes Die? I'll personally see to it that he lives forever!! No libertarian congressman presidential wannabe or you lousy Reasonistas is going to force me from this cushy gig?

  • Mr. FIFY||

    Where is Keynes buried? I have an urge to take a shit.

  • Sevo||

    Dunno. I don't like standing in lines.

  • John Maynard Keynes||

  • Neu Mejican||

    Why Failure Doesn't Discredit Keynes

    Because economics isn't science?

    Poorly defined terms?

    Correlation doesn't equal causation?

    Cuz' those who call it a failure don't have anything approaching definitive evidence of its impact or lack thereof?

    Observational sciences like economics have a hard time pinning down causative relationships?

    Because opinions are not typically strong enough evidence to prove a hypothesis incorrect?

    Yadda yadda.

  • Red Rocks Rockin||

    Because economics isn't science?

    Neither is politics, but that doesn't stop academia from pretending it is.

  • ||

    Just because some stuff promulgated as economics isn't scientific doesn't mean the entire field isn't science. The fact that some physicists work in string theory doesn't make physics "not science".

  • Sparky||

    It's a social science, not a hard science. That doesn't make some of it's findings invalid but outcomes are subject to irrational human behavior.

  • ||

    So biology isn't science either? Unless we're claiming animals and plants are rational.

    Whether it's science or not depends only on whether it correctly uses the scientific method to test falsifiable hypotheses. It doesn't matter what the subject of the hypothesis is.

  • Sparky||

    It's late but I'll correct you anyway dummy. The fact that humans have a heart and 4 appendages is not affected by human behavior. The fact that plants contain chlorophyll which allows them to convert light to energy is not affected by my bad day. You see, real science.

  • ||

    Studying animal behavior is part of biology.

    Dummy.

  • Sparky||

    Your failure to grasp the concept is astounding.

  • ||

    Tulpa, really? Biology is the same as Economics?

  • Maxxx||

    So biology isn't science either?

    Biology-Yes, Psychology - Not so Much.

    Economics is a subset of psychology or sociology.

  • ||

    Lots of work in psychology is scientific. There are very few Freud or Jung types left in psychological research.

  • ||

    I have a (worthless) Pysch degree, so I feel I can at least offer some semi-cogent comments. Does mathametics also have similar disagreements/approaches as Psychology? For example, Freud and Jung, as well as Watson/Skinner? Psychology is a soft science, in my opinion.
    Psych might use "the scientific method" but it is incapable of coming to the same degree of certainty that math, physics, chemistry have attained.

  • chris||

    Good analogy.

  • mad libertarian guy||

    Yeah!

    It just couldn't be that it has NEVER worked.

  • ||

    Observational sciences like economics have a hard time pinning down causative relationships?

    So, when observed conditions repeatedly fail to correlate with confident predictions, we can fairly discard basis of those predictions, correct?

  • Sparky||

    This time it will work because the right people are in charge.

  • AZ||

    Of course not, we just miscalculated the inputs, adjust those (by going backwards through our model with the actual outcomes), and you'll see the model is still valid!

    Macroeconomics is for people who like the idea of science even though they really don't know how to do it.

  • ||

    Astronomy is as much an observational science as economics, and no one in their right mind questions its status as scientific.

  • BigT||

    Do you really believe the actions of people are as predictible as the movements of planets and stars?

  • ||

    The movements of planets and stars are not all there is to astronomy.

    Stellar evolution is just as complicated as economics.

  • Old Mexican||

    Re: Neu Mejican,

    Because economics isn't science?


    That's not even A reason, let alone the reason. Economics is a science, it is simply not an empirical science - neither is mathematics, by the way.

    Poorly defined terms?


    What?

    Observational sciences like economics have a hard time pinning down causative relationships?


    Hey, stupid, economics already has the cause pinned down:

    PURPOSEFULL ACTION.

    Why do you so try too hard to showcase your ignorance, Neu?

  • Neu Mejican||

    Why do you so try too hard...

    I was just predicting some of the arguments that might come up on the thread. Are you really unable to discuss any topic without displaying your bad manners?

  • A fan||

    Call INS on these guys!

  • ||

    Observational sciences like economics have a hard time pinning down causative relationships?

    Did New Mex just say that government should not plan the economy because it is impossible to know the effects of such tampering?

  • Neu Mejican||

    When have I ever advocated a centrally planned economy.

  • ||

    When have I ever advocated a centrally planned economy.

    You seem pretty hooked on this climate change problem...which apparently requires a centrally planned economy to solve.

  • Neu Mejican||

    You seem pretty hooked on this climate change problem...which apparently requires a centrally planned economy to solve.

    Oh, that's right, you don't ever read or understand what I write on the topic. You just argue with the watermelons in your head.

  • ||

    Economics is a science. Unfortunately economists aren't scientists.

  • ||

    Failure does not discredit Keynesianism because it is a religion.

  • Paul Krugman||

    Adherents of this religion seem to ignore the tenets of "Thou shalt not deficit spend during the boom years of the business cycle" and "Thou shalt lower taxes during recessions", much like how fundamentalist Christians ignore "Thou shalt not commit adultery" if they're Newt Gingrich or "Thou shalt not commit murder" if they're talking about the death penalty.

  • Or Foreigners||

    But then progressives are the most guilty of all in that respect.

  • A Serious Man||

    "Why failure doesn't discredit Keynes?"

    Because it's a state-worshipping cult?

    Think of a tribe of islanders that believe in sacrificing virgins to the volcano in order to stay the wrath of the volcano god Aggregatedemandiky. Whenever some reason-inclined islander questions whether or not the sacrifice works, cheif priest Krugabe calls him a fool and asks him to think of all the volcanic eruptions that didn't happen as proof that you can't prove that it didn't have any effect.

  • Paul Krugman||

    Imagine what might have happened if we hadn't put any virgins in the volcano. To avert disaster, we need to dump all the virgins we have left into the hungry volcano immediately.

    Only imbeciles and the uneducated disagree with me.

  • H man||

    Sounds like a plan. We'll start with you good Dr.

  • Keynes||

    Krugman, you fucking moron, I wrote specifically that if the government is running a structural deficit of virgins (and god knows we are), then casting them into the volcano is a fucking stupid idea.

  • Paul Krugman||

    I can print you a voucher which may be redeemed by the bearer on demand for 1 volcano-ready virgin.

    You can use it for any purpose you would use a real virgin (except throwing it in the volcano. For some reason, it requires the real thing.)

  • ||

    Sorry Paul, we're out of virgins.

  • ||

    I volunteer to devirginify all the hot virgins that don't want to be sacrificed.

  • Red Rocks Rockin||

    Whenever some reason-inclined islander questions whether or not the sacrifice works, cheif priest Krugabe calls him a fool and asks him to think of all the volcanic eruptions that didn't happen as proof that you can't prove that it didn't have any effect.

    Appropriately, TSA defenders use the exact same argument.

  • Scruffy Nerfherder||

    Keynes helped make possible the Jeffrey Sachs, Robert Reichs.....

    Stop right there. If Keynes is even partially responsible for the massive pile of stupid that is Robert Reich, then there is a special place in hell for him beside our dearly departed Korean leader.

  • ||

    In fairness to Keynes, those people probably would have been Prophets of the Omnipotent State regardless of what he did. Sort of like Torquemada would probably still have tortured people if he had been a Hindu.

  • ||

    In theory, I could see how Keynsian economics could work. As I've mentioned here before, it would be similar to a solar energy system where the gov't takes the same role as the storage batteries, but it requires way too much governmental discipline to actually work in practice. It requires that during good economic times, the gov't shrink its spending and go into "accumulation mode", then during recessions, go into spending mode but only up to the limit of the accumulated money. The result would be a smoothed out business cycle.

    That, of course, is nothing like the way gov't operates. In practice, in good times, gov't increases spending with most of it going toward expanding itself, then when a recession comes, it's a huge leviathan that acts as a sink that sucks the remaining money out of what little is there. It's ends up acting like a battery with an internal short...i.e. not a storage device at all, but an additional energy consumer.

    It'd be a crime if no one in the economics community has thought of this analogy and all the implications therein.

  • Appalachian Australian||

    Keynes wrote his treatises in a much more fascist and less democratic time.

    Keyensianism very well might have worked in the European forms of government that sprouted right after his time. (They ended up being a lot more interested in using their newfound prosperity to wage endless war.)

  • ||

    Yep - He failed to predict the utter irresponsibility of modern politicians.

  • Old Mexican||

    Re: NAL,

    As I've mentioned here before, it would be similar to a solar energy system where the gov't takes the same role as the storage batteries[...]


    "Ignoring the effects of Opportunity Cost, solve the following problem..."

    Looks like how High School physics problems begin.

    The problem, NAL, is that the government produces nothing, so it has nothing to store. Imagine a fish tank, where the government would be a clueless kid syphoning out water to keep it in a bucket, in order to "stimulate" the fish later when these have a difficult time breathing through the muck.

  • ||

    What you said is true, but using the solar energy analogy, the batteries don't produce anything either, the solar panels do. The batteries serve to smooth out the day-night cycle.

    A benevolent, disciplined, politically detached gov't could conceivably perform the same function, but the problem is a benevolent, disciplined, politically detached gov't is more imaginary than the Easter bunny.

  • fish||

    Looks like how High School physics problems begin.

    Indeed!

    Model the cow as perfect sphere........

  • ||

    Not true, the government produces dollars. Think of the economy as a person having a heart attack and dollars as adrenaline injected into the heart. The government needs only print up some dollars to stimulate the economy. Granted, the economy is nothing like a person having a heart attack, but why let that stand in the way of a faulty system of economics?

  • ||

    I love how any criticism of government stimulus is always met with "It failed because the stimulus wasn't big enough. We must spend more. Much, much, more!" I have one question --- In the history of the world, has there ever been stimulus spending that worked (i.e., where enough was spent)? If not, have you ever thought that maybe, just maybe, that's because Keynes was wrong?

  • Appalachian Australian||

    If the government deficit spends an infinite amount of dollars, the multipliers result in an infinite amount of wealth for everyone and everyone can demand an infinite amount of goods.

    Try plugging the numbers in Keynes' equations. It works!

  • chris||

    It's the same logic that lead Samuelson to conclude in his textbooks that the USSR would outgrow the United States that he prophesied over several publications between the 60's up to the year before the fall of the Berlin Wall. After all, the Soviet economy was much more efficiently managed than any in the West. No, seriously; his adherence to the Keynesian formula lead him to think this to be true. It is no exaggeration.

    Then again, maybe it was that Gorbachev liberalization that did them in. Who is to say. It's not like economics is a science.

  • Labour Party Axiom||

    Thatcher destroyed the British economy with that Hayek liberalization crap.
    Reagan destroyed the US economy with Reaganomics.
    Gorbachev betrayed the Russian people with perestroika.
    Goddamn neoliberals.

  • ||

    Keynesians can't admit its a failure because it would be bad for their careers.

    Its really no more complicated than that.

  • ||

    You didn't just pull out the Kuhn, did you?

  • Paul||

    It's not a hard sell to convince someone that they can spend somebody else's money ad-infinitum, even when there isn't any left in the bank.

  • James Hansen||

    Same reason I'll never give up AGW. It's my meal ticket and my source of validation.

  • Neu Mejican||

    Old Mexican|12.19.11 @ 4:56PM|#

    Re: Neu Mejican,

    NM: Because economics isn't science?

    OM:That's not even A reason, let alone the reason. Economics is a science, it is simply not an empirical science - neither is mathematics, by the way.

    So you agree with me the premise then...economics can't discredit Keynes, cuz it ain't an empirical science. Check.

    NM: Poorly defined terms?

    Om: What?

    Undefined in the question. "Discredit" "failure" etc...or did you think this discussion was working within a well defined semantic arena?

    NM: Observational sciences like economics have a hard time pinning down causative relationships?

    OM: Hey, stupid, economics already has the cause pinned down:

    PURPOSEFULL ACTION.

    Since it ain't empirical, it ain't got anything pinned down...just opinioned down. Don't you ever read your own arguments?

  • han||

    President Obama’s economic mastery is even more evident in Washington, DC, where house prices have been climbing ever since he took office.

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