Thursday, December 9, 2010

Some thoughts on Keynes

To borrow and slightly modify from Lee "[I like Keynesian economics,] and I get tired of defending it". Lee suggested he doesn't like Keynesian economics, and gets tired of defending it against others who don't like it, but don't understand what Lee considers to be the decent elements of the Keynesian framework. His thoughts on that are here.

He's addressing an earlier post by Russ Roberts, who I feel is one of the most frustrating to deal with on this issue. He proceeds as if all the dumb claims of what's been called "vulgar Keynesianism" are actually what Keynesians think. Consumption is better than investment. Saving is bad. The solution is always for the government to spend more. Governments know enough to plan economies. Heterogeneity doesn't matter. He doesn't skirt the edges of these things - this is Keynesianism for him. The result is, well, some bad analysis. His Keynes vs. Hayek rap is full of vulgar Keynesianism too, of course. If it were being shown to high school kids that never even heard of Keynes before, I guess it might be a useful educational tool. But in any college class it distorts more than it teaches.

I haven't read Russ's newest post yet, but he has a long one on his reflections on Keynes here. I probably won't read it. I already glossed over it and I'm not encouraged - "where does the money come from?" (as if there were some fixed quantity of money), "savings is bad" (as if he had never heard of liquidity preference that drives a wedge between savings and investment). I can't take time to read it now, but I welcome anyone's thoughts on Russ's post.

I have posts delving into my thoughts on some misconceptions of Keynes here, here, here, here, here, and here, and probably in a few other places as well.


  1. You have to admit though, supposed followers of Keynes are just as bad as interpreting Keynesian economics. I remember reading a recent article by Sidelsky (I don't remember where), and it's amazing how different Sidelsky's explanation of Keynes's economics is from a lot of other popularized, short essays that are published by various news sources(Sidelsky's is the most accurate, of course).

  2. Digging holes and filling it stimulates economy, not quite as well as "properly planned" stimulus. But holing and filling are better than nothing. That's keynesianism too. No wonder it is easy to take swipes at it.

  3. Jonathan -
    People who don't understand Keynesianism but write news stories about it have about the same quality as people who don't understand Austrianism and write news stories about it - there is definitely a lot of bad stuff out there. I wouldn't disagree with you on that.

    And, like the vague libertarians who talk about hyperinflation and conspiracy and claim the name "Austrian" without knowing much about malinvestments and the structure of production, there are people who adhere to a very caricatured version of Keynesianism and claim the mantle "Keynesian". It's definitely out there, you're absolutely right. I think it's unfortunate that you see so many professional economists promoting the same understanding of Keynesianism, though. There's no excuse for that.

    Skidelsky is a very, very interesting guy. He is sharp and he really knows his economics for a historian. But by the same token he's firmly in the Post-Keynesian camp and will give a view of Keynesianism that is different from a lot of its other promoters. That's not a bad thing at all, and I like to read Skidelsky. But sometimes he goes under the label "Keynesian" and readers don't recognize that he is a very different flavor of "Keynesian" than Mankiw or Krugman or DeLong, or me for that matter.

    Anonymous -
    Strawmen are pretty easy to take swipes at too, I hear. You should read Lee's post that I link to. He's not entirely on board with fiscal stimulus, but he always does a good job explaining how fiscal stimulus works somewhat like monetary stimulus in the bond market - which is the real, fundamental argument behind fiscal stimulus. If you understand that, you'll understand why Keynes used examples like "burying bank notes" and "building pyramids" to illustrate how under certain conditions just about any sort of expenditure would be sufficient.

    That doesn't mean, of course, that Keynesians are indifferent between burying bank notes and building a road or a school. It's simply making the point that it's the expenditure itself that really matters. A productive expenditure is obviously good too.

  4. I often find that wild words often backfire, and make it easier for people to strawmen otherwise sound arguments.

    It was a terrible terrible mistake on Adam Smith's part to use "invisible hand", on Frederic Bastiat's part to use "divine finger" (was that the one?), on John Maynard Keynes' part to use "animal spirits", and so on.

    Much of the argument of various kinds of economists has been about known knowns, known unknowns, and unknown unknowns. Because capitalism is often about working with unknown unknowns, it involves a process of failure that uncovers those unknown unknowns which thus helps in the best allocation of scarce resources - thus the invisible hand. It is indeed that Keynes also believed that working with unknown unknowns required businessmen to work with bold, costly experimentation with uncertainty or "animal spirits".

    I only give a more simplified argument, but on one hand, laymen parody the virtually supersitious sounding statement of "invisible hand" and on the other hand, even intelligent economists on Mises.Org cruelly use "animal spirits" as proof that Keynes did not understand business and just thought it was voodoo.

    Because economists love using flowery language, supporters of their ideas tire out defending what sounds undefendable. It is typical of certain hard and soft socialists (like the recently deceased Tony Judt) to condemn Joseph Schumpeter's "creative destruction", without knowing what it meant.


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