Welcome to the new version of European Tribune. It's just a new layout, so everything should work as before - please report bugs here.
Display:
Interesting article.  One major criticism:

Keynesianism, if you add its flexible, muscular form during the Depression to its more rigid postwar version, lasted 45 years.

One of the reasons I'm such a huge fan of Keynes is because people in economics say this to me all the time, and they don't even realize the incredible degree to which this is false.  Everyone is a Keynesian, today -- more so than ever before.  Even people who have never studied economics, and who know nothing about economics, are Keynesians.  When a Wall Streeter says, "Consumer confidence is slipping, and that poses a problem," he's demonstrating that he is a Keynesian, whether he realizes it or not.  When a so-called "Supply-Sider" tells you that he's going to cut taxes, so that it will put money in your pocket to spend, he's being a Keynesian.

When citizens say that WWII ended the Great Depression, what they don't recognize is that WWII, from the standpoint of economics, was simply a giant worker program.

(As I've said in the past, Keynes had Supply-Side economics figured out when Artie Laffer was still in diapers, and he had Monetarism figured out while Milton Friedman was still writing his dissertation.  A Monetary History of the US is simply an extension of Keynes's A Tract on Monetary Reform.)

When the media talkingheads and the citizens say that the rebuilding of New Orleans will provide a small boost to the economy -- as an alleged anti-Keynesian professor of mine said last year -- they're talking about Keynesian principles, even when they refuse to admit it.  When Bill Clinton said he was going to raise taxes in order to balance the budget, as the economy left the recovery phase and began its expansion, so that pressure on interest rates would be relieved, he was, in an odd way, being a Keynesian.

So, while the rest of the article is interesting (though wrong, in my opinion), Saul has a very poor understanding of just how dominant Keynes has become in our daily lives.  I could fill, I'm guessing, two diaries with examples of his ideas at work in today's world.  What's so interesting about the man, to me, is that he was able to destroy Classicalist economics in a matter of twenty pages at the beginning of The General Theory.  And the Classicalists, along with the Austrians, have hobbled along ever since.

Saul, like most others who make that statement, has probably never read Keynes -- or, if he has, he probably only read Book I of The General Theory, and was frustrated by the fact that he had no idea as to what Keynes was talking about.  If you want to know just how wrong Saul is, read this and (as Krugman says) marvel.

I'll respond to the rest later.  Need coffee first.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Mar 17th, 2006 at 10:24:38 AM EST
Here is my problem with Keynesianism. The emphasis on aggregate demand has led to nonsense like Bush's "this is the worst attack on US soil since Pearl Harbour, but by all means keep on shopping"; an emphasis on consumer demand, boosted artificially by asset bubbles is need be; disposable products and planned obsolescence, with the attendant increase in resource use and waste production; and so on and so forth.

So, I don't know, maybe capitalism is due for the next Keynes, because right now it ain't working.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Fri Mar 17th, 2006 at 11:18:07 AM EST
[ Parent ]
The problem -- and you're right to bring this up -- is often that the "anti-Keynesians" and other non-readers constantly try to reduce Keynes only to the discussion of boosting aggregate demand.  Had this been his only point, The General Theory would've been no more than fifty pages long, instead of the roughly 400 pages he actually wrote.  Remember that the book is built, first and foremost (and contrary to what the title suggests), as a roadmap to ending the Great Depression, though it is applicable to recessions in general.

Keynes said many times that demand could easily be too high, causing inflation.  It just wasn't the case at the time he was writing his magnum opus.  Demand had collapsed.  And he knew that lowering interest rates more would do absolutely nothing, except cause more money to be stashed in coffee tins under citizens' beds.

You have to look at both sides.  People get caught up in what Keynes was saying about aggregate demand, but he was only saying it because a boost to aggregate demand was what the economy needed, desperately, at the time.  If you ever get a chance to read A Tract on Monetary Reform or The Economic Consequences of the Peace, I highly recommend both, because they'll give you a much better picture of how Keynes thought about inflation and deflation.  (As I recall, he even discusses asset bubbles, though that's not what he calls them.)

They're also much easier reads than The General Theory, which can seem like torture at times, because Keynes was explaining everything in such detail.

Another myth is that people will tell you Keynes believed recessions were caused by a fall in demand.  That may be true, but it's not what I got from him.  My interpretation is like Krugman's.  Keynes didn't give a damn about what caused a recession.  Recessions were, and are, a fact of life, even in non-capitalist countries, so asking what caused them was the wrong question.  He cared about how to combat them.

I think he probably would've advocated a greater emphasis on fiscal policy in the aftermath of the 2001 recession, especially once housing prices began taking off.  But, more than anything, I think the key understandings to take from him are those on inflation and deflation, and especially the fact that they do not produce simply the reverse effects of each other.

A critical point that I think you're getting at is that he's not the end-all, be-all of economics, but rather an important turning point -- away from myths like the idea that money is neutral; that prices and wages adjust instantly; and (most importantly) the idea of the "moral economy" (read: Austrian) where recessions are the result of past excesses and, therefore, cannot be fought.  There is a great deal more to work out, but questions, like those surrounding (say) asset bubbles, are small, relative to those he was working with.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Mar 17th, 2006 at 12:01:22 PM EST
[ Parent ]
As you know I'm slowly making my way through the classics of economics. Should I skip the marginalists and go straight to Keynes?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Mar 17th, 2006 at 12:10:29 PM EST
[ Parent ]
Ever consider writing up book reviews/reports/notes for us as you go?
by Colman (colman at eurotrib.com) on Fri Mar 17th, 2006 at 12:13:28 PM EST
[ Parent ]
More diaries...

I am not particularly interested in reviewing Adam Smith, but I'd definitely go for a review of John Stuart Mill's Principles of Political Economy and Chapters on Socialism.

I should probably also review 50 major economists, which I read a few months ago.

You keep giving me more and more ET work.. Poor Barbara.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Fri Mar 17th, 2006 at 12:32:02 PM EST
[ Parent ]
No, the marginalists are important, and Keynes is an extension of their work.  I wouldn't skip them.  Nor would I skip the early-20th-Century Classicalists, like Marshall and Pigou, because those are the two men Keynes was critiquing in Book I.  I've never seen a Pigou book outside of a library, but you might have better luck in Britain.  Also, Mises is a terrible writer, but important, nonetheless.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Mar 17th, 2006 at 12:27:22 PM EST
[ Parent ]

Display:

Occasional Series

24 July 2014
by dvx - Jul 23
59 comments