Sunday, April 3, 2011

This will be the narrative to defeat

Keynes, certainly the greatest economist of the 20th century and perhaps the greatest ever, has made an incredible comeback in the last several years. In many ways he never left. While very specific public policy prescriptions had fallen out of favor for a while, the impact he made on how economics is done and how we think about the economy lived on even through the people who thought they were displacing him. But even in addition to that framework for doing economics, the more specifically Keynesian ideas have had a resurgence for one important reason - the same reason that any scientific theory gains acceptance: it makes good sense theoretically and it fits the data.

A lot of people who are not on board, though, have been pushing back. It's notable that one of the major ways they push back is with a sort of sociological, historical counter-argument, rather than an analytical, scientific counter-argument. Peter Boettke writes:

"The main mechanism [for the rise of Keynesianism] is the shift in the nature of public administration due to the progressive era, which Vincent Ostrom examines in detail in his masterpiece in the field, The Intellectual Crisis of American Public Administration (1973). This shift in public administration changes the expectations of what public policy is to deliver to citizens, and more importantly for our purposes what is expected of the policy experts. Keynes' economics fit that demand better than the more traditional mainline of economic thinking, and the Keynesian avalanche occurred and transformed economics as a discipline and economic policy ever since. To challenge this hegemony, one must get at the root cause, which is that transformation of public administration."

Boettke is - and I don't think he would dispute this - a heterodox economist. But he's not the only one that's asserted things like this. Lee Ohanian has been on record saying things similar to this (although less blatant in saying "the politicos like it") as well. And you can look at the way the whole Tea Party movement reacts too - they don't care about economic science - they see the constellation of Keynesian ideas (even if they can't identify it as "Keynesian") as a politician-buttressing ideology. It's much like the reaction against evolution that some people have - often it isn't an analytic counter-argument at all. Instead, creationists provide a sort of botched, unconvincing "these are the political ramification of evolution" counter-argument.

And yet the narrative is remarkably persistent, despite the lack of a real argument. They categorize Keynesianism as political ploy rather than scientific theory, which relieve's them of the need to engage it as a scientific theory.

This frustrates me to no end, but ultimately this will be the narrative that needs to be defeated. It's not even a narrative that makes particular sense. Since when have politicians been elected on the slogan "I don't really care about your specific spending needs because Keynesianism doesn't go that specific, I'm just going to deficit spend on everything". Keynesianism makes horrible politics, which is part of the reason why Alex Tabarrok has questioned whether for that reason alone we need to consider alternatives (I provide thoughts on Tabarrok here) I disagree with some of the pessimism of guys like Tabarrok on "Keynesian politics", but I think his grasp of the situation is much stronger than Boettke's on this point.

Anyway, like I said - this is the narrative to beat. I plan on writing something about this in my Economic Thought class this fall - answering or starting to answer this question of "why did Keynes catch on in America?". I think it has very little to do with what Boettke has mentioned and a lot more to do with the fact that (1.) it's good science, and (2.) American economic thought extending back to the colonial period was predisposed to accept Keynes.


  1. Modern Keynesianism doesn't exist without Monetarism (meaning Milton Friedman) - so even if you buy into Keynes, which I don't, he left a massive, gaping hole that Friedman filled.

    Anyway, despite all the supposed "return of Keynes" comments we see throughout the blogosphere (either in glee or dread), at best his return has been highly muted and in particular cases (e.g., Britain), he has not returned at all.

  2. To completely negate this narrative, we must find any once liquidationist, pro-deflation statesman who later decided to adopt Keynesian policies when he started to believe he was wrong.

    But who?

    Plenty of pro-nationalisation politicians across the world have pushed for privatization once they saw their nationalised industries were simply not performing. And it was a Carter Democrat who deregulated airlines. These prove that those things happened because of necessity and not because of political whims of the party line.

    Can anyone do the same for those influenced by Keynes?

  3. Gary - could you provide more details on what you mean by that? I think most modern Keynesians do acknowledge Friedman and monetarism, but I'm not sure exactly how they wouldn't exist without it. Certainly they'd be different.

    Prateek - I imagine many of the Keynesian or Keynesianish politicians of the 30s and 40s fit this bill. But part of what frustrates me is precisely this focus on politicians that Boettke has. Deregulation didn't become good economics because Carter embraced it, right? Politicians are consistently late-comers to the game and even then they consistently mess it up. Part of the problem, I think, is that Boettke is treating this like a political movement to be dismissed rather than a theory to be addressed. When American politicians embraced evolution (not always the case here), we don't say "wow that's more proof for evolution" we say "it's about time". So I'm just as uneasy with this "proof by politician" strategy as I am with Boettke's "disproof by politician" strategy.

  4. Keynes, certainly the greatest economist of the 20th century and perhaps the greatest ever,

    Hahahahahahahaha.. Oh Daniel, you do crack me up sometimes.

    I would normally ask for proof of this claim (given: exceptional claims require exceptional proof) but I'll just take it as a given that you're having a bit of fun today.

  5. The best economist ever!!! Certainly his methods are perfect if they are put into use without exceptions. My country suffered a lot from the shift of keynesian economics to monetarism which clearly doesnt work out for 95 % of the people in my country...


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