Some Defunct Economist - 7/26/2010

"Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist" - JMK

- Brad DeLong quotes extensively from David Pilling's article on Keynesianism in Asia, and the justified faith that people have in it there. The article also seems to make the cautionary point that effective stimulus was possible in Asia because of the large cash reserves. I would be careful about taking this too far. It's also plausible that growth and living standards were depressed precisely because of years of that public liquidity preference. Regardless of the wisdom of that hoarding policy, Asia is a good place to look to evaluate Keynesian performance now. Krugman also has comments on Pilling here.

- Crooked Timber has an interesting interpretation of a recent Martin Wolf article, suggesting that Keynesianism is an (inadequate) substitute for social democracy. He ties it into the recent Krugman-Cowen debate over Keynesianism and Germany.

- Firedoglake asks the question "why do conservatives hate Keynes". Part of the answer, the author argues, is that Keynes was not afraid to criticize people who hoard capital. I think this is largely on target. It's amazing how many critiques of Keynes simply revolve around things like the "euthanasia of the rentier" rather than actual analytical critiques. In a way that's unfortunate. But I also wouldn't do away with Keynes's "euthanasia of the rentier" or any of his other rhetorical flares. They keep the reader focused. Economic policy is about the public good, not the special interest, and we can't ever keep our eyes off of that. Fighting for some vague notion of the public good isn't an excuse for bad analysis, though - and Keynes is laudable not simply for his enthusiasm but also because analytically he got so much right. But I think that energy is essential.

I would caution Firedoglake against some of its language and approach here. First, they criticize those who "own and manage capital" - this isn't something that Keynes himself ever harped on. In fact, Keynes made it very clear that those who manage capital deserve substantial compensation for a very challenging job. His concern was the rentier, not the managers. The ones who earned without contributing anything to society. The critique was a social and political one as much as an economic one, but it was generally speaking not directed at managers of capital. I'd also echo Lee Kelly's comment from an earlier post that FDL and others in that crowd really need to clean up their language around savings and investment, and this post is no exception. The post makes the important point that not all savings ends up being invested. But then later in discussing sinking funds, the critique is that the money is "saved rather than spent". Well earlier they said that some but not all savings are invested, so is this sinking fund partially spent? "Savings" in the first instance seems to mean a stock of loanable funds, and in the second instance it seems to be a hoard of some sort. This is why we need to be very clear about the distinction between supplying savings to the loanable funds market and liquidity preference. Treating "savings" in one instance as the excess of income over consumption and in the next instance as a hoard, at the same time that many others talk about savings as supply in the loanable funds market is all very confusing. Better I think just to talk about liquidity preference explicitly the way Keynes did.