Wednesday, January 5, 2011

Boettke on Keynesianism

Breaking my New Year's resolution on day five! Anyway - this is worth posting. Peter writes:

"The claim that Keynesian economics has made a comeback since 2008 in the public imagination has become commonplace. I have claimed repeatedly that the reports of the death of Keynesianism in the public policy sphere in the 1970s and 1980s were widely exaggerated.

The sweeping victory of Keynesianism among professional economists and public policy experts in the 1940s and after is one of the most striking intellectual transformations in the history of modern political and social philosophical thought. Mark Blaug points out in his Economic Theory in Retrospect, that never before in the history of economic thought have we seen such a sudden and complete conversion to a new paradigm.

I have been completely intrigued by this question roughly since 2001, when I started writing on the shift in the ideological paradigm away from liberty and the free market (at least in the rhetoric of public policy). If you look at either my APEE address, "Liberty vs Power" later published in the Journal of Private Enterprise or my Trotter Lecture for the NZBR, you will see that I was arguing about the lingering influence of Keynesianism. But in those earlier papers I never really addressed the reasons why there was such a wide-scale acceptance of what I consider such fundamentally flawed ideas. I was content to engage in a content analysis of economic ideas, but left alone the questions of the sociology of knowledge/history of economics that must be addressed to understand the Keynesian avalanche. In other words, I was more interested in making the linear argument that bad ideas leads to bad policies which results in bad outcomes, rather than trying to figure out why bad ideas caught on and had such staying power despite a track record of bad consequences.

When I read Vincent Ostrom's The Intellectual Crisis in American Public Administration, I started to connect some dots between progressivism, scientism and Keynesian policy expertise. Keynesianism, in short, fit perfectly the intellectual demands for progressive public policy that Ostrom identified. I am working with one of our graduate students on developing this argument.

Now there is a new working paper through NBER that also addresses why Keynesianism was so widely accepted by economists and public policy makers.

What do you think?"

I am very suspicious of arguments like this in intellectual history... they're too damned convenient ideologically and essentially assume intellectual weakness or opportunism. If, however, this is not intended as an intellectual history so much as a political history, I think the idea may get more defensible. I sketched my response out in much more detail in the comments. Jonathan also has a very good comment in there.

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