Economics

Why Failure Doesn't Discredit Keynes

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It wasn't just Keynes. Everybody affiliated with the Bloomsbury group sucked.

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