Keynes was a Conservative

[melveyr]

I stumbled across an interesting article by Bruce Bartlett:
http://www.forbes.com/2009/08/13/john-m ... tlett.html

Keynes push for macro intervention was out of desperation to save the capitalist system, so that we could all preserve our microeconomic freedoms. It saddens me how people trash Keynes' name when really he is on their side, just fighting with an intellectual tenacity that they cannot match leading them to see him as a threat.

Can you imagine how fearful he must have been during the depression and with the uprising of communism in Russia? He truly dedicated his life to help the western world see a light at the end of the tunnel within the context of capitalism.

[Benko]

From the article:

"One of Keynes' students, Arthur Plumptre, explained Keynes' philosophy this way. In his view, Hayek's "road to serfdom" could as easily come from a lack of government as from too much."

Which speaks for itself. 

[Pointedstick]

It's important to look at historical events through the lens of history. As melveyr said, that time was a terrifying one. We could have easily become a totalitarian dictatorship as so many other countries did. I mean heck, we managed to get off with putting only a small proportion of our own citizens in concentration camps… and not killing them! We didn't ditch capitalism and freedom entirely, we just saddled it with a bunch of regulations and taxes.

I believe that these were huge mistakes, but it could have been a lot worse. Back then, the "laissez-faire capitalism ho!" option just wasn't on the table during a time of communist revolutions, brewing fascism, and, rampant domestic sympathy for both.

[Benko]

The ONLY relevance of Keyenes is whether his style of economic interventions improves things now.  As best I can tell it does not e.g. Obama's stimilus.

Whether he is considered liberal/progressive, conservative or any other label you care to give is irrelevant.    And especially so given the statist comment.  Statism is not conservative in my book from the point of view of 2012.

[moda0306]

I wonder what Keynes' feelings on safety nets and social insurance were...

From what I can tell, Keynes simply said, "if government is going to invest in X, Y or Z eventually, anyway, do it ahead of time..."

Maybe I'm neutering the hell out of his extremism, but I think it's more about the timing of government spending, not so much about the things the government should be doing for us on a regular basis.


Benko,

You really think that Obama's stimulus is the only thing on record to back up Keynes' views?  The depression itself should offer at least some perspective...

1929-1933 the economy was in freefall... both GDP and unemployment were in shambles...

1933-1937 w/ modest deficit spending, strong real GDP gains and unemployment falls at a moderate pace

1937-WWII engagement, w/ spending cuts introduced in the midst of a recovering-but-still-depresssed economy, double-dip recession ensues, and real GDP falls as unemployment rises again.

WWII engagement: US engages in MASSIVE deficit spending and investment, far in excess of anything during the New Deal, and unemployment drops almost negative in a blink of an eye.  By the end of the war, balance-sheets had been repaired via gov't sector deficits, leaving the private sector much more able to sustain decades of productive, stable recovery... in the face of 70%-90% marginal tax rates on the wealthy, to boot.

Now, of course, the US was building war-machines and engaging in wealth-destruction overseas, but that wasn't necessary to bring unemployment down.  It was simply the directed use of the deficit spending.

Regarding the stimulus, here is one man's relatively sound analysis on why it wasn't big enough:

http://krugman.blogs.nytimes.com/2011/0 ... -stimulus/

[Pointedstick]

moda, it's interesting, but I think a major deficiency of debt-backed fiat currencies is people's understandable difficulty in understanding the difference between currency issuers and currency users. On a micro level, we're exhorted to be thrifty and careful with our money, not becoming too indebted, and keeping our balance sheets positive. And most levels of governments are told to follow this as well. But when you try to describe the difference between them/us and the federal government, and explain where money comes from, the mechanics of currency flows become very easy to muddle up with our ingrained sense of morality surrounding how much to spend, on what to spend it, and what level of indebtedness is safe.

When pundits say things like, "oh, $800 billion wasn't enough, we need the federal government to spend $5 trillion!", people start to freak out because that level of indebtedness is frightening. Perhaps instead we should phrase it as, "the federal government should inject $5 trillion into the private sector!" That might go over better, and it more accurately describes the intent behind the proposal.

[Benko]

Moda,

1. Perhaps we should call it Krugmanism to save poor dead Keyenes from any more abuse.  (I wrote this before realizing you referenced Krugman).

2.  Jerry Pournelle (his personality is irrelevant) recommends a book I can't think of the name now (you can find it on his site) which illustrates how it made the depression far worse, so not everyone agrees with you on that.

3. "one man's relatively sound analysis on why it wasn't big enough."

Jim Quinn (conservative radio Pittsburgh) comments that liberals never admit their ideas don't work, they just think they need to do them larger.

[Pointedstick]

but do they inject it into the private sector?
i suppose it gets there eventually, but it seems to take a long journey through boondoggles, cronyism, banksters, broken windows and preferred campaign financiers..

Who do you think sells them the boondoggles? 

Of course, that gets to the morality question. If the government injects trillions into the private sector by purchasing vast quantities of weapons, thereby grossly enlarging the size and political clout of the defense industry, is that a positive change for society?

[Storm]

I think the balance sheet explains everything in a way that anyone who took Accounting 101 in college should understand.  A debit on the public sector balance sheet must be offset by an equal credit on the private sector balance sheet, unless of course the government just wants to hand money back and forth to each other.

Even if the government just purchased boondoggles or expensive vacations for every government employee, don't you think that money would end up in the private sector somehow?  I know the hotel employees and travel industry would sure benefit from some government boondoggles.  And what do you think those private sector workers are going to do with their paychecks?  Pay taxes and buy more stuff, helping the economy further.

It's not rocket science.  It's simple accounting.

[Pointedstick]

I think the balance sheet explains everything in a way that anyone who took Accounting 101 in college should understand. A debit on the public sector balance sheet must be offset by an equal credit on the private sector balance sheet, unless of course the government just wants to hand money back and forth to each other.

Even if the government just purchased boondoggles or expensive vacations for every government employee, don't you think that money would end up in the private sector somehow? I know the hotel employees and travel industry would sure benefit from some government boondoggles. And what do you think those private sector workers are going to do with their paychecks? Pay taxes and buy more stuff, helping the economy further.

It's not rocket science. It's simple accounting.

i would say it depends a lot on what those government employees are doing for that paycheck, if we stimulate the economy by enlarging government, who then spend every minute of there non vacation hours regulating every aspect of the market, and picking the economic winners and losers and micromanaging every aspect of peoples lives we won't have much left in the way of freedom or an economy, yes the money gets there eventually, but how it gets there and what it does along the way to getting there is important..

looking at and understanding the balance sheet and the accounting is important, but it is far from being the alpha and omega of how economics interact with peoples lives or a country's prosperity/freedom. top down state controlled economy's have a horrible record at creating prosperity or understanding demand

You're right of course, Storm. The problem is that even though this money all makes it into the hands of the productive private sector eventually, who gets it first affects which private sector industries grow in size fastest. In your scenario, we might expect the size of the hotel and travel industries to grow very quickly to support all this federal spending… thereby creating a political incentive for that congress-directed spending not to be cut off lest the industry suffer severe contraction, deflation, and unemployment.

Anytime the government buys specific things as opposed to simply spreading money around equally--as it would in the case of Stone's "Citizen's Dividend"--it's favoring part of the private sector over another, in the process playing a strong role in determining which parts of the economy grow and also creating bits of localized inflation. It's not *just* an accounting thing; it has ethical and moral implications too. Do we really want a hotel industry larger than it would otherwise be without all the federal spending? How about a larger defense industry? A larger financial industry?

It's sort of like buying specific PP assets rather than dividing all of your contributions evenly among the four asset classes. You're making a value judgement about which one has the best growth potential rather than being neutral and letting the PP do its thing.

[moda0306]

Benko:

1) That's fine. 

2) Trying to find his specific opinion on the depression, unsuccessfuly, I came upon this quote:

I would think that printing fiat money is the very definition of inflation.

Facepalm... then the act of digging up more gold must be inflation, too.  Overall he seems like a pretty thoughtful guy, though.  No hard feelings.  I tend to think most of the anti-Keynesian folks tend to think along liquidationist lines, where the solution to the depression is that bad debts and unsustainable businesses get purged from the economy, either by foreclosure, or debt-forgiveness.  The way I see it, it takes these nasty economic arrangements a lot longer to clear than simply engaging in enough stimulus right away.  If the government had spent as much as it did after December of 1941, but spent it in 1931 and on public projects (as well as (and this is where Krugman and I would differ) simply mailing people checks and income tax cuts), we would have been out of the woods in a heartbeat, IMO.

3) PK brought what I deem to be at least a relatively sound mathmatical analysis of the stimulus.  I would like to see it refuted using math, or at least conceptual logic, not just a hyperbolic attack on liberals with no real substance.

[Storm]

Anytime the government buys specific things as opposed to simply spreading money around equally--as it would in the case of Stone's "Citizen's Dividend"--it's favoring part of the private sector over another, in the process playing a strong role in determining which parts of the economy grow and also creating bits of localized inflation. It's not *just* an accounting thing; it has ethical and moral implications too. Do we really want a hotel industry larger than it would otherwise be without all the federal spending? How about a larger defense industry? A larger financial industry?

Very good points, PS.  Politics just seems to come down to who's cronies get the money, or who's industry gets to grow fastest.  Where this becomes troublesome is when malinvestments occur.  For example, the restaurant owner who all of a sudden had a sudden surge in demand due to the government boondoggles at the hotel next door, and decided it was a permanent increase in business, so he took out a loan and expanded his restaurant and added more tables.  If the government spending gets cut off, he might go out of business as well, or suffer due to the malinvestment.

I work in healthcare and the running joke is that since healthcare inflation is running somewhere around 15% annually or higher (not sure the exact figure), and GDP is only growing at 2%, pretty soon everyone in the world will work in healthcare.  It's not sustainable, long term, for any industry to have growth exceeding GDP growth.  So, whenever I see an industry growing at 10-20% a year, it screams bubble to me.

[Pointedstick]

I work in healthcare and the running joke is that since healthcare inflation is running somewhere around 15% annually or higher (not sure the exact figure), and GDP is only growing at 2%, pretty soon everyone in the world will work in healthcare.  It's not sustainable, long term, for any industry to have growth exceeding GDP growth.  So, whenever I see an industry growing at 10-20% a year, it screams bubble to me.

This is exactly why I'm not saving a penny for my children's college education, where the same trend is present. The school I attended at $40k/yr is now 60k/yr only 3 years after I graduated. It's just not sustainable, and the government has enabled perfect price discrimination with the FAFSA. You save more, they just take it! Something's gotta give.

[moda0306]

Accounting is really only a part of the pie.  I'll definitely grant that.

However, when it comes to all the social and behavioral aspects of economics, Austrians seem equally wrong.  Inflation, high interest rates, Galtian retreats in Utah, etc haven't manifested themselves the way they "should have." 

The nature of supply & demand, financial assets and liabilities and who holds them, trade deficits, and the nature of productive investment in the face of inadequade demand all have a role to play.  Monetizing an economy also causes certain self-fulfilling fragilities that play a huge role in private sector instability.

[MachineGhost]

but do they inject it into the private sector?
i suppose it gets there eventually, but it seems to take a long journey through boondoggles, cronyism, banksters, broken windows and preferred campaign financiers..

+100

[Jake]

The article in the OP is by a former Treasury Department economist- i.e. an economist who worked for the State, just like Keynes did. It doesn't surprise me that his perspective is that Keynes had noble motivations, nor does it surprise me that he believes that it is very important for economists like Keynes to be hired by the state to mess with monetary system (for the greater good of course). Within that context, the article's musings on poorly defined things like whether Keynes was "conservative" or not seems pretty meaningless to me.

For an alternative view of Keynes' motivations, I recommend Murray Rothbard's short biography "Keynes The Man", available online for free.

[melveyr]

The article in the OP is by a former Treasury Department economist- i.e. an economist who worked for the State, just like Keynes did. It doesn't surprise me that his perspective is that Keynes had noble motivations, nor does it surprise me that he believes that it is very important for economists like Keynes to be hired by the state to mess with monetary system (for the greater good of course). Within that context, the article's musings on poorly defined things like whether Keynes was "conservative" or not seems pretty meaningless to me.

For an alternative view of Keynes' motivations, I recommend Murray Rothbard's short biography "Keynes The Man", available online for free.

What I am really attempting to dismiss is the notion that any macro intervention is a step towards communism or socialism. Sometimes the capitalist system requires intervention because reflexive credit based feedback loops start working in the wrong direction. If you don't intervene you can run the risk of an economic revolution.

[Pointedstick]

The big thing I didn't understand as an Austrian is that macro intervention is often necessary because of the nature of the monetary system that has been set up by government. It already controls the currency, and has created this cockamamie system whereby all money creation requires somebody to become a debtor to somebody else, and certain favored private sector businesses have been given regulated monopolies on currency creation, much like public utilities. It's not hard to see how such a system is fragile and may periodically set itself on fire.

Everything would be different if we had a free market for currency... but we don't.

[moda0306]

Ps,

How do you think a free market for currency manifesting itself in the US?  Everyone defaulting to gold?  Various commodity-based currencies?

If so, which one should our government use to collect taxes?

[Pointedstick]

I don't see it happening. It would be incompatible with government and taxes.

[moda0306]

Kinda seems incompatible with a modern economy too...

[Pointedstick]

It would be just another choices from among the myriad choices consumers already navigate. I don't see how having non-monopoly currencies for people and businesses to choose from would be any more confusing or hindering than having 50 car companies, 100 fast food chains, or 1,000 brands of everything in the supermarket.

[moda0306]

Having a common medium of exchange is multitudes more efficient in a modern national economy than having a bunch of private currencies with private promises attached to them.  It would be a mess compared to what we have today... IMO of course.

[l82start]

i am not sure multiple mediums of exchange is an idea 100% ready to go, but it seems far from impossible, small country's with open borders have managed to deal with exchange rates without to many problems, and we live in the computer, smart phone age....  i bet there is an app for that ... or would be soon enough

[Tortoise]

Having a common medium of exchange is multitudes more efficient in a modern national economy than having a bunch of private currencies with private promises attached to them.  It would be a mess compared to what we have today... IMO of course.

Necessity is the mother of invention. I would think that in a free market for currencies, various companies would compete to come up with ways to make conversions between private currencies as efficient as possible.

Besides, most likely there would be only a small handful of dominant private currencies--the most reliable, trustworthy ones. Most of the rest would be weeded out through consumer choice, similar to what happens in so many other industries where a few big players are dominant.