Friday, July 20, 2012

The strangest Austrian discussion of Keynesianism I've read in awhile...

Here. brings me back to those hair-pulling-out Russ Roberts/John Papola days.


  1. And it seems my comment has been deleted from it - it was up last night.

  2. This post would be more convincing if it contained some ideas about what's wrong with Chidem's post.

    1. I know - I just threw up a link because figured people would click through and see my comment on her post. I considered whether to reconstruct my comment in a new post, but had other things to write about.

      In a nutshell, I thought she was wrong that Keynesians aren't talking about this or thinking about this. It seems to me with the exception of Stiglitz (who has explicitly rejected the explanation) they talk about it a lot. I also think she is confusing Keynesians not agreeing with her on health reform with Keynesians ignoring uncertainty. It's not a strong argument. She wouldn't think much of me saying that because Austrians don't talk about the kind of uncertainty Keynesians talk about, they don't care about uncertainty.

  3. OK so Chidem says Keynesians blame Aggregate Demand, whilst Austrians blame regime uncertainty, and she specifically cites Stiglitz and Krugman.

    Daniel agrees that Stiglitz does it.

    Here is George Will and Paul Krugman from 2008:

    GEORGE WILL: Sam, one of the ways we turned a depression into the Great Depression that didn't end until the Japanese fleet appeared off Hawaii was that there were no rules and investors went on strike because the government was completely improvising. Net investment was negative through almost all of the '30s because, again, people did not know the environment in which they were operating because the government had the fidgets and would not let rules and markets work.

    PAUL KRUGMAN: This is not the way - okay. Well, it's not the way I read the history. It's not the way - no.

    GEORGE WILL: Am I wrong about net investment?


    PAUL KRUGMAN: No, the negative net investment was because, you know, when you have 20% unemployment and all the factories are standing idle, who wants to build a new one? You don't need to invoke the government to explain that. No, what actually happened was, you know, there was a collapse of the financial system, which was not restored for a long time. There was a persistent deep slump in consumer demand and, therefore, no investment demand and so you were stuck in this trap. Roosevelt got the economy moving somewhat. By 1937 things were a lot better than they were in 1933. Then he was persuaded to balance the budget or try to and he raised taxes and cut spending and the economy went back down again and then it took a enormous public works program known as World War II to bring the economy out of the depression.

    So I think Daniel you can put your hair back in now. I didn't read the whole post, but Chidem's intro is fine. I think you need to cut your opponents some slack, when they say "Keynesians say..." and it's stuff that Keynesians say all the time.

    1. You might want to put some meat on this response Bob.

      Again - not worrying about all the things Austrians worry about is not the same as not worrying about uncertainty. Note also that Chidem discussed "uncertainty", not the specific regime uncertainty story offered by Rothbard or Higgs.

    2. DK wrote:

      You might want to put some meat on this response Bob.

      Meat?! I gave you a full turkey dinner. It would be hard to imagine a better example of Paul Krugman doing exactly what Chidem said he did.

      Again - not worrying about all the things Austrians worry about is not the same as not worrying about uncertainty.

      OK, show me ONE EXAMPLE of Paul Krugman saying that there are two main problems with the world economy, namely insufficient aggregate demand and investor uncertainty, such that the way to get out of this mess is to boost demand and reduce uncertainty. I don't recall him ever saying anything like that, and in fact (as I've shown) he has often specifically DENIED this.

    3. I think any defense is going to have to be by pointing at something implicit in Krugman's logic, not something explicit in what he's written. Krugman claims to be a "part oner" of The General Theory, instead of a "Chapter 12er," which pretty much means he accepts the premise that there can be a general glut (a scarcity of money) but that he rejects Keynes' own logic for why these exists. Then he turns around and uses IS/LM, which model's Keynes' logic.

      But, Krugman advocates targeting a high inflation figure to boost "inflation expectations," which I think implies that entrepreneurs are uncertain about the state of long-term income prospects. It's not regime uncertainty, but it is a kind of self-feeding endogenous uncertainty that rises during periods of depression.

  4. Ah yes, argumentum ad Keuhnum:

    1. Austrian claims Keynesian says X
    2. Austrian says X is wrong
    3. DK says "I don't know of any Keynesian who believes X"
    4. Austrian points to textual evidence of X
    5. DK insists that's not what the Keynesian meant
    6. Austrian does facepalm, wastes a bunch of time arguing about it and eventually realizes it's pointless, and goes back to working on something more productive.

    1. Very mature Steve.

      I'll try to post more on this tomorrow.

      I'm not the only one that found something off about Chidem's post. Jonathan was "surprised" by it and another commenter over there noted that the claims were "lazy".

      And then Mario comes along and suggests Keynesians haven't paid attention to something that Krugman and Summers have written reams on since the start of the crisis.

      I'd appreciate it if you actually answer these concerns rather than mock that fact that I raise them.

  5. Chidem Kurdas's post is flawed for the following reasons:

    (1) Keynesians do not ignore uncertainty, and the heterodox Keynesians above all have developed Keynes's ideas on uncertainty to a very great extent (e.g., Shackle, Davidson).

    (2) The belief that having the government "do nothing" would decrease uncertainty is ridiculous and risible. A "do nothing" approach would have a collapsed the financial system, caused millions to lose their savings, induced a depression, and shocked business expectations.

    (3) Whatever uncertainty is caused by the factors lists (Obamacare, regulatory explosion, giant budget deficits, anti-business rhetoric and threats of increasing taxes) would be overcome by sufficient AD and a surge in demand for the products of business.

    "Recently I went to a well-known restaurant in Evanston, Illinois. ... But the night I was there, it was less than half full. I asked the manager if he would he hire more waiters and chefs if his taxes were reduced and/or government removed the existing regulations controlling the way his restaurant could operate. His answer was that even if his taxes were reduced and regulations eliminated, he would only hire more staff if more customers came in for dinner. On the other hand, if there were twice as many customers for dinners than there were on this night (and there were many more customers before the recession began in 2007) he would gladly double the number of workers he employed even if his taxes were not reduced or regulations changed.

    That’'s how things work in the Real World. This simple case illustrates clearly that entrepreneurs will have confidence to expand and hire more workers only if they find the market demand for their products and services strong and growing."

    Paul Davidson, “Restoring Trust in the American Economy: The Real World v. The Confidence Fairy,”, July 11, 2012.

    This is the reality of business - Austrians fairy tales of evil government not withstanding.

  6. Perhaps I ought to insert the views of Dr. Michael Emmett Brady on Allan Meltzer. Brady has noted that Meltzer and Keynes both acknowledge all kinds of ambiguity/uncertainty. See the following book reviews.

    Also Daniel Kuehn, could you please respond to my e-mail?


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