I'm sorry to pick on Steve so much lately, but this whole thing really is beyond silly...
...apparently now uber-Keynesian Paul Krugman agrees that weak investment is the primary signature of the business cycle!!!!
This is why you should read Facts and Other Stubborn Things. I'm an amateur, I know. I'm not one of the big-name guys. But I'm not regurgitating total nonsense either. A couple days ago you had a set of people telling you Keynesians think it's all about consumption and that Bob Higgs did this great service by pointing out that investment is weak. I said early on that everyone knows investment is the most volatile - you can't really call yourself an economist if you don't know that. I said Keynesians are of this opinion too (indeed - regular readers know I've been saying Keynesianism isn't consumptionism for a long time).
And since that time, who have we had come out and agree with me:
Greg Mankiw (big shot Keynesian)
Paul Krugman (big shot Keynesian)
John Maynard Keynes (interpreted by Barro, Mankiw, and Krugman who all say he thinks this)
Karl Smith (medium shot Keynesian)
Me (small time Keynesian)
Do we have any Keynesians challenging this idea? Not that I have seen. This is like the 1920-1921 paper all over again. Lots of insistence that Daniel Kuehn is putting a rosy face on the dumb Keynesians, or that Daniel Kuehn may have gotten Keynes right, but modern Keynesians wrong, followed by several big-name Keynesians coming out and saying exactly what Daniel Kuehn said.
Here's a suggestion to the blogosphere: human beings are intelligent. If you come across what you think is an easy to articulate ace-in-the-hole argument based on readily available data that you think completely refutes a long-standing theory that an intelligent person adheres to, you're probably misunderstanding the theory. There's no such thing as a $20 bill lying on a sidewalk. There's no such thing as a free lunch. Intelligent people recognize obvious things like the volatility of investment, the heterogeneity of capital, and the fact that government spending isn't a panacea. Theories that don't recognize these things don't survive for 70 years.
What is interesting is that Mankiw and Krugman recently have been on a roll where they have dispelled various anti-Keynesian cracked mirrors, where some people assume that Keynesians believe the opposite of whatever they believe.
ReplyDeleteI have noticed that among people challenging Keynesian views, there is a certain dead-end when a Keynesian tells them, "I agree with everything you say, but also I think such and such, and I don't even hold the latter view to a very strong extent either." They just don't know how to respond to it.
"But....but...you are the Devil!"
Agree. It's like they don't want you to agree. They want there to be a fight. Usually it doesn't come to saying "you are the Devil" thankfully - but some people get weirdly uncomfortable when you (1.) challenge their stereotypes, or (2.) suggest there is agreement. I don't understand the mindset that shuns agreement and consensus like that.
ReplyDeleteKuehn is still butthurt over Horwitz divulging the uber secret Kuehn Sequence. I would tell you that he merely organized in writing what we were all thinking, but if you want a holy war then you'll get one... Devil.
ReplyDeleteI hope you'll understand if I ask you to:
ReplyDelete1. Keep the anal sex references to a minimum
2. Don't comment anonymously - at least use a pseudonym - those are fine, and
3. Comment more intelligently - particularly when I provide evidence against Horwitz's mocking of me. Steve maintains these accusations even in the face of evidence that he's dead wrong. As Desolation Jones noted in teh last post - he even CITES A KEYNESIAN saying exactly what he says Keynesians don't say. So if you're going to anonymously and crudely, at least provide some sort of explanation for that. Blind devotion is an ugly thing.
Prateek,
ReplyDeleteKrugman would be more convincing if he didn't make comments like these: http://krugman.blogs.nytimes.com/2011/09/11/the-years-of-shame/
"...cash in on the horror."
Most of the suite of Bush's foreign policies were wrongheaded, but there is really no evidence that they were created to "cash in" on anything. Indeed, if the Bush administration had really wanted to "cash in" (by which I presume he means cash in as far as electoral success is concerned) they could have tried to help to ramp up anti-Muslim attitudes in the U.S. up to a fever pitch and helped to create a "Muslim scare" (sort of along the lines of a "red scare"). But the Bush administration didn't do that.
Then you get this golden gem.
"The atrocity should have been a unifying event..."
Wars of any length are never "unifying events." That's even true of WWII. And it is particularly true of democratic polities. Warfare reveals (it doesn't create) the socio-political fractures in a polity, and it is a very good solvent in that way. Indeed, this meme is common amongst liberals and conservatives; that wars are unifying events. Indeed, it is tempting to say that only an American with the WWII myth as a model in their head could think this. It could also be argued that it harkens back to a pre-Humean notion of the martial as a civic virtue.
I don't believe my comments are in any way unfair.
As for statements about consumption, Keynes, etc., I'd say that advocates of a robust and active government are as much to blame as anyone (if indeed Keynes never argued such a thing). That meme entered the public consciousness in part back in the 1930s via a series of government sponsored propaganda films about mere consumption being the solution to all our problems ("Give A Man A Job" is the classic incarnation of this).
Just a couple of points I thought were worth making.
ReplyDeleteFirst, a lot of the Austrian criticism directed towards "consumptionists" comes from the media/journal pundits persistently touting the importance of consumption spending for the health of the economy. The sheer amount that this is covered (just watch cnbc) is an indication of it's focus. Now, if you're not convinced that we're stuck in an equilibrium with large amounts of idles resources - many Austrians - advocating an increase in consumption spending would be the opposite of what you'd want to do. while I certainly don't speak for Horowitz, who seems to have guys like Krugman in mind as well, I can say that others do have this "popular"/media conception in mind when putting forth their criticisms.
Second, and related to the first. When Hayek was writing pure theory, he was most mindful of what he thought to be - at least from my reading - the greatest point of contrast between the "English" camp and the "Austrian" camp; namely, that the former ascribed to a positive relationship between consumption and investment, while the the latter emphasized the opposite. Now, he also discussed circumstances under which the former would hold - a la the existence of idle resources (see Profits, Interest, & Investment). But at the same time he had several problems with "idle resource economics" in general (criticisms in the Pure Theory). In any case, I'm not familiar with Keynes, so I don't know what his take on the issue was.
Daniel, I aced my intro to macro course and I'm still clueless... If the goal is to spur private investment, what is the ideal theoretical way(s) to do this? Also, I've run into some folks who are saying that consumption really is the problem because, though PCE has recovered, the overall increase has been small. They say that therefor there is no need to increase investment because consumption has been more or less flat. Any truth to this? As an amateur, it's confusing to me.
ReplyDeleteErr... I understand expansionary policies and all that. Is the idea basically that government steps in as the investor until the private investment returns? Sorry for such an elementary question. Like I said in another post, I'm unfortunately still unlearning the consumption-centric view of Keynes. I should probably sit down and read through my intro macro text again. I'm so bad at retaining material after a course is over.
ReplyDeleteSo some introductory macro courses teach IS-LM but many don't.
ReplyDeleteIf you haven't seen that, I'd google it. For all the talk about more sophisticated models like DSGE, my understanding is (I'm only vaguely familiar with these myself) the DSGE models have what amount to IS curves and LM curves in them too, they are just derived differently and perhaps presented a little differently (if that didn't make sense to you, don't worry about it).
So actually doing investment to generate growth is one possibility. In the Keynesian cross framework G operates exactly like I in that it is not a strict function of income - it shifts for other reasons (presumably political reasons - and perhaps some constraints from the bond market for countries like Greece).
But what you'll see people like Krugman and DeLong talking about is that in a liquidity trap, where nominal interest rates are constrained to be zero, producing new bonds is like producing money normally. It lowers the interest rate - which Keynesians say is determined in the money market - by satisfying more money demand. Fiscal policy becomes like monetary policy. Outside of a liquidity trap things are a little different - you have to start worrying about crowding out, but assuming there's no perfect crowding out of investment it's still reasonable.
I know that was probably vague - I have to do a few other things and perhaps others can discuss too. There are really two goals: (1.) generation of safe savings vehicles (which those who accuse of consumptionism ignore), (2.) lowering interest rates to encourage investment which is hampered by excess savings, and (3.) generation of expectations of future demand - which is why the government simply acting like a consumer isn't anti-Keynesian but it's not real argument (you'll see I note this in a lot of "Keynesianism as consumptionism" posts - that the government acting as the consumer of last resort should make us leary because it is potentially distortionary, not because there's anything inherently non-stimulative about it.