Russ Roberts has two posts up about the strong post-war economy here and here. He quotes me in the second one. Russ thoughtfully emailed me for a reaction to the second post. I provided one, which I may repost here too.
But on a more basic level, I find it bothersome that a lot of people have this view of Keynes as a perennial pessimist - as if he thought that the economy couldn't ever get along without government. I think if you read Keynes, this clearly isn't true. Economic Possibilities for Our Grandchildren, published during a terrible point in the Depression, is one of the most optimistic economic essays ever written. And if Keynes ever claimed that the economy would be necessarily depressed without government spending, this is not a passage that I've ever stumbled on.
One of the best statements about the problems with viewing Keynes as a pessimist was provided by Lawrence Klein in his book The Keynesian Revolution (1966):
"It is wrong to think that Keynes’ system fails if it cannot predict pessimistic results. The pessimism is not inherent in this system; instead the determinants behind the system make it operate either pessimistically or optimistically, depending on the current state of affairs in economic and non-economic life."
If you applied the facts on the ground to Keynesian theory in the early post-war period, you would get optimistic, not pessimistic results. And as Klein says, it is wrong to think that Keynes' system fails if it cannot predict pessimistic results.
This view that Keynes always predicts terrible things for the economy, which he sees as always in need of government intervention is an odd perspective indeed. Keynes said that essentially the entire 19th century was characterized by such a high marginal efficiency of capital that it lulled people into imagining that full employment was some kind of natural or guaranteed outcome for the capitalist system. He essentially said not only is fiscal and monetary intervention not always necessary, but there was an entire century when it wasn't necessary at all for tremendous prosperity. Keynes is usually thought of as a proponent of the idea that ideas exercise a powerful influence on reality. His characterization is something of a reversal of this idea. In looking back at the 19th century, Keynes discusses how material conditions shaped the economic thinking of the period around issues of full employment.
So no, I don't think Keynes is a pessimist. He's a realist at all times, and at least in terms of the big picture he's an optimist.
Would a pessimist do this?:
Tuesday New York Times Smackdown: Eric Wemple
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