Posted on 10/13/2014 11:14:17 AM PDT by Kaslin
In a September 11 Bloomberg article, economist Noah Smith claims that John Maynard Keynes, the architect of today’s government economic policies around the world, wasn’t a “‘socialist’” or even a “‘progressive.’” He did not favor “a command economy.”
Yes he “was in favor of some amount of wealth redistribution and government intervention into the economy.” But “Keynesian policies are fundamentally … about economic stability,… about smoothing out the fluctuations in the economy, reducing risk for everyone concerned.”
“Stabilization theory says that you can smooth out the wrinkles of the business cycle without messing with the deep structure of how the economy works. The expectation is that if the government does just that—just that one small, minor intervention—then recessions won’t be a big problem….” To accomplish this, among other things, the government will raise interest rates when the economy is too hot and lower them when it is too cool.
So who is misrepresenting Keynes? His critics or Smith? In the first place, Keynes himself did not recommend raising interest rates to cool off an economy. He wrote that “The remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the boom to last.” [General Theory, p. 322]. He even recommended eventually bringing interest rates down to zero and keeping them there [General Theory, pgs. 220-21 and 336].
Nor are Keynesian attempts to stabilize the economy through interest rates a “small, minor intervention.” They represent a price control of one of the economy’s biggest prices, the cost of credit. Today they are also accompanied by many other managed prices—most notably in world currency markets, but also in large domestic markets such as healthcare.
A market economy depends above all on free prices. All the Keynesian price controls, manipulations, and nudges just lead to boom, bust, and economic destruction, the opposite of stabilization.
Smith states that Friedrich Hayek, Keynes’s most prominent critic in the 1930’s and 1940’s, began the misrepresentation of Keynesianism. But Hayek argued that “the more we try to secure full security by interfering with the market system, the greater the insecurity becomes,” and Hayek was right. Wilhelm Ropke put it even more succinctly: “The more stabilization, the less stability.”
Smith also describes Greg Mankiw, a leading contemporary Keynesian and author of one of the most widely used economic textbooks, as one of “the most prominent conservative economists writing in the popular media today.” Well, Mankiw is a Republican and did serve George W. Bush as chairman of his Council of Economic Advisors. But George W. Bush is the president who enlarged government and deficits and who coined one of the most memorable oxymorons of all time when he said “I’ve abandoned free market principles to save the free market system.”
Is Smith at least correct that Keynes was not in favor of a “command economy”? Here is how Keynes described his own views on this subject:
“[I favor] … a somewhat comprehensive socialization of investment.” [General Theory, p. 378].
“State planning,… intelligence and deliberation at the center must supersede the admired disorder of the 19th century.” [BBC broadcast, March 14, 1932].
Keynes did oppose Marxism. He regarded Soviet Communists as deranged “Methodists” [Essays in Persuasion, pgs. 299, 310], but said about the early Soviet five year plans: “Let us not belittle these magnificent experiments or refuse to learn from them.” [BBC Broadcast, March 14, 1932].
In general, Keynes’s critics are not distorting him. It is the people who zealously guard his shrine, including the New York Times, Public Radio, and Wikipedia, who are doing so.
Keynes only makes sense if you believe that you can take water out of the deep end of the pool and pour it into the shallow end to make the shallow end deeper.
However, Keynesian economics does fit hand in glove with leftist/humanist beliefs - that everything could be perfect if the right people were given enough power to make things perfect.
IIRG Keynes ‘stimulus’ was to use surplus funds for short term and quickly rebuild the surplus.
I would look it up and reread it; but it makes my brain hurt!
I have a BIL who is an economist. He says he had to read Keynes in grad school, and that it can be interpreted in many ways. What is called Keynesianism now is just the way it wound up be interpreted in the 70’s.
Keynes cannot be anything but “misunderstood.” His writing is very poor. I have tried several times to read Theory of Money...etc and cannot make of sense out of it. Paragraphs do not hang together. His arguments do not fit his assertions. What people “understand” about Keynes is the official interpretation of his book and the things he later said he wrote. His writing simply does not make sense. Everyone should find a copy of the book and read it. Read it carefully. If you just skim the lead sentences in the paragraphs and go straight to the conclusions you may feel you know what it is all about. If you analyze it it becomes simply turgid and irrational ramblings
Rule by the Experts. Friedman’s Monetarism is a mirror image sort of the same thing.
Keynes was a homosexual with no vision for a sustainable future for his progeny. (Children are born and raised by hetero-sexual unions.) Keynes future outlook was summarized by himself, “...in the end we are all dead!” His real outlook eat, drink, sodomize and then die ...the end. In contrast Solomon wrote wisdom for the ages “ A good man leaves an inheritance to his children’s children...” Proverbs 13:22
Keynes was simply wrong. However, i believe if he could somehow see what things have been done in his name today even he would understand his error.
That was then. This is now. The long run has finally arrived, and we're all dead.
This is one of the better articles about Keynes. Many of the negative comments above address leftist distortions about what Keynes actually said. Keynes was no Keynesian (as that term is fondly used by today’s tax-and-spend big-government advocates).
“Keynes only makes sense if you believe that you can take water out of the deep end of the pool and pour it into the shallow end to make the shallow end deeper.”
A better analogy would be: if you believe that you can dam up a river, to reduce flooding, and store up water for release during droughts. Of course, you can do that — and, in theory, you can do much the same with fiscal policy.
However, while in theory there’s no difference between theory and practice: in practice there is. Fiscal policy works well in theory — it doesn’t fare so well in practice.
The big problem with fiscal policy is that it’s usually about 180 out of phase with the economy. By the time fiscal “stimulus” is put into effect, the economy is booming, and theory calls for fiscal restraint — and vice versa.
An even bigger problem is the way tax-and-spend governments use fiscal policy. They’re all for stimulus. They never met an economic indicator that didn’t look like a signal for increased spending. However, they completely ignore the other half of Keynes’ prescription — pay back debts during boom times. That never happens — and that’s why Keynes’ would not be among today’s Keynesians.
Never trust anyone who nurtured at the knee of G.E. Moore, like Keynes. Moore was a philosopher that Wittgenstein said was proof of how far you could get in philosophy without knowing anything.
Keynesian fiscal policy is budget deficits financed by confiscatory taxation, government borrowing, and creation of money out of thin air.Keynesian monetary policy is easy money (credit expansion and low interest rates).
The problem is that the nature of Keynesianism is statist. Also, it is a paradox. He wants expansion with stability, but deficits, inflation, confiscatory taxes, and excessive borrowing cause decreased capital accumulation which leads to stagnation. Also, Keynesian economic stimulus artificially sets the stage for financial contraction, which becomes the next recession.
As WW II ended, Britain elected a Labor government that promised socialism in full measure, with the nationalization of major industries, public health care, and intensive regulation for the common good.
Since Britain was exhausted by war, broke and without credit, the new socialist government looked to America and sent the much respected Keynes to negotiate a package of grants and loans. Fortunately, Keynes' arrogance killed any prospect of success.
Keynes opened the conference in Washington with a long statement to the effect that Britain had a strong claim on America because Britain had fought longer and sacrificed more in the war than America had. In other words, in Keynes' sales pitch, Britain's wartime sacrifices meant that she was entitled to call on America to finance her embrace of socialism.
As it was, Keynes got nothing. Britain had to pay for socialism by herself. The dismal consequences of socialism eventually led to the election of Margaret Thatcher and the unwinding of much of the socialist state that Keynes had supported.
Maligned? Yes, and deservedly so.
Misunderstood? Not a chance.
For all the years before this Keynes baboon was given credence, the nation had been operating under the foundational work of one John Kenneth Galbraith, whose teachings I learned, while in high school.
“Keynes only makes sense if you believe that you can take water out of the deep end of the pool and pour it into the shallow end to make the shallow end deeper.”
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Don’t be silly, no one believes something that stupid, what you can do is take one hour off one end of the day and add it to the other end to make it longer.
rofl
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