Wed Jun 4th, 2014 at 01:54:26 AM EST
When, many years ago, I joined this site (at that time still will using my real name - such naïveté), I believed - very strongly, I might add - in two things:
- That the symbol at the top-left corner of this site was someting good
- That the debt overhang that I was forecasting (and correctly so) would end up in hyperinflation.
Clearly I was completely wrong on both counts. Regarding point 1, the EU and the Euro are destroying Europe in front of our eyes...
But I am here to talk about point 2.
I always looked at Paul Krugman as a man with the heart in the right place, but not understanding anything about economy (mind you, they give the economics "nobel" to all kinds of people - that is never an argument). How could he not see the coming hyperinflation? So I read him, with both love and contempt.
Again, I was totally wrong: it is quite obvious how things pan-out: Keynesian macro got things mostly right. It was really interesting to read Paul over the years and just see how his predictions turned out mostly right (and mine mostly wrong).
Now, I understand that this might be confusing: how can I suggest - in the title - that Keynes was wrong and say all this?
front-paged by afew
Its the politics, stupid! (and remember, economy is mostly politics by other name)
Sometime ago, I was thinking on how good it was if somebody had devised a system that would penalize nations that would had both systemic trade deficits and SURPLUSES. Not being an economist, I was not aware of the International Clearing Union, the Bancor... another Kenyes' idea, of course.
Now, it is kinda interesting that we ended up with the IMF instead of the ICU. Ah.. if we only had got the ICU instead. Actually this starts to show up the first problem with Keynes: the devised system is not very resilient to design changes. Get something wrong and you get a problem (is it OK if I call the IMF a problem?)
But there is an even more serious issue with this arrangement: Keynesianism requires an elite that is both well-intentioned and intelligent. If the elite is dumb or has other motivations (like, say, protect the rentiers) then we have a problem. Question: What is the probability of having a decent, enlightened elite? Notice that the elite is especially important in Keynesianism because the good functioning of the system requires functioning top-down institutions (transnational and national).
I would say that a global system (and Keynes was proposing a global system) contains the seeds of its own destruction if it requires a decent and enlightened elite: global systems will be, by construction complex and will have a distant management cohort prone to be taken by special interests that can organize at a global scale. These special interests would more easily be the interests of rentiers (just because they will have the resources to organize at the global scale).
But the biggest problem with Keynesianism is not that. And this leads me back to my stupid predictions about hyper-inflation.
Notice, very importantly that I was hardly alone in my stupidity: "serious" economists would share similar concerns. Serious people in general. But not only that: when I hear conversations on the street, I can hardly remember a case where people had a Keynesian view of money - it was only hard money views...
...Indeed Paul Krugman (no link - but this was somewhere on his blog) once noticed that people in America considered the deficit a very important problem... in the time of FDR. Results of a poll made at the time.
The fundamental problem of money is that the individual/psychological relationship that we have with it is fundamentally opposed to its systemic behaviour. Money can be created, destroyed, devalued, etc (and should be managed). But our personal relationship with it makes it very difficult to accept that that fundamental tool for survival can be (and should be) so easily manipulated/managed. At the core people have a "gold bug" view of money. Put a median eurotriber on the pulpit vs a zerohedger (discussing money) and the the zerohedger will "win" the debate for most people.
Keynes might be right about money, but Keynes is also counter-intuitive and difficult. It takes time to get it. It is politically hard to defend him: you will not easily get a majority with you (and if you disagree, just look what is happening now).
Actually the notion about money is the easiest problem to solve: through the education system. It would not be difficult to devise a curriculum that would pass on the intuition of how money works in society. But, while that would be possible in the future it is hardly any consolation now...
And of course, there is the class thing: the "euthanasia of the rentier" might make rentiers jittery. And, as per above, they would not have much trouble to convince most people that inflation is the bogey-man.
Don't read me wrong: I am not proposing anything in alternative. Just pointing out the flaws that I perceive in what passes for Keynes thought (I say "what passes for Keynes thought" because I never read the man directly).
Finally I want to address one problem with my reasoning above, the problem is this: Keynesianism was possible and real after WWII. I want to argue that this is circumstantial:
- WWII and all the tragedy around shaped an environment where concern for the common good was possible afterwards.
- The communist threat: western elites had to compromise quite a bit to control the expansion of communism. While communism might have not been very good for the ones living under it, it was good for us: scaring the elites into some concessions. Now your cynicism might vary: but I am actually convinced that this was the most important reason enabling Keynesianism in the west.
- [Of least importance] Times of abundance (as the post-WWII period was) are more inline with Keynes thought making him easier to defend.
The more I discover Keynes' economic thought, the more it impresses me (in a positive way), but I believe that the political requirements for it to happen are utopic.
The title of this post is obviously provocative, but I think it might be correct on the political front.