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.
“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 made his feelings known through an anecdote about the time that he attended a meeting of ‘Keynesians’. When he returned home at the end of the evening he told his wife Lydia “I was the only non-Keynesian there”.
He gets blamed for a lot of policies that he didn’t advocate. They were actually the policies of socialists who called themselves Kenynesians.
Keynes believed the government should tax high in the good years and then drop taxes in the bad years and the government then gives back what it took in the good years to smooth out the bad years.
Keynesians believe you tax high in the good years and tax higher in the bad years and keep raising taxes because well they get more money to buy more votes by spending more money on government pork.
Galbraith himself was a ‘Keynesian’. Keynes is at least a generation older than John Kenneth Galbraith and had written his ‘Economic Consequences of the Peace’ when Galbraith was still a young teenager.
That’s right. Keynes also advocated reducing government spending and paying down debt during the good years so that you could be free to spend during the bad times.
The big flaw in Keynes is that politicians don’t work that way and never will. They don’t look at the long term and will continue to spend during the boom times and constantly increase the amount of debt.
When we operated under the gold standard of Bretton Woods there was still a feedback mechanism to work on Congress to hold spending in check- but again politics won out. Kennedy was the first to ignore a simmering inflation, which only increased under LBJ. And then Nixon scrapped Bretton Woods and cut the dollar loose from gold. The decline of dollar since 1971 is no coincidence.
So how is this all working for us?
not real well....
I tried that book as well and found it unreadable. The official interpretation you speak of comes from Paul Samuelson and John Hicks. They must have had magic spectacles to decode Keynes’ writing or they got his ideas from some other source.
Short answer, no. Long answer, hell no.
Keynes suggested before his death that the original was a parody. It was, in fact, written very like those theses that MIT students and others from time to time get accepted into the peer reviewed journals after which the writers announce that it was all a nonsense conglomeration of jargon and tautology. Keynes got accepted and promoted before he got to the point of announcing his Hoax and kept his mouth shut, maybe.
Yes, yes.
Ya know .... after I wrote that, I thought I had better look, myself. Keynes may have been older, but was not mentioned in that class.
So, in response, who was “the man with the plan”, in the time of The Founding Fathers?
Might we return to THAT person’s writings?
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