Behind The Continued Hate Of Keynesianism

It seems that not one day goes by without some politician, academic hack, ‘capitalist’ or ideologue spouting about how “Keynesianism does not work”.

Here is my counter question- Why bother trying to come up with new ways to tell the world that it does not work?

How much ink or electrons are spent on trying to convince others about the futility of believing that the earth is flat, common infectious diseases are caused by spirits, fire is cold or feudalism is a good idea? Why not? Because the truth is obvious based on multiple lines of objective evidence which can be independently verified.

You can look up and observe the spherical shape of other astronomical bodies such as the moon and other planets, fly in airplanes at 50-60,000 feet or send up your own 200 dollar high altitude balloon to independently verify that the earth is not flat.

It is similarly possible to isolate, culture and characterize pathogenic bacteria and viruses with fairly basic lab facilities. You can also follow the course of an infection after giving an appropriate antibiotic. To put it another way.. it is bleeping obvious!

Now take a look at the ideological arena. Today few people see feudalism, absolute monarchy or communism as viable and hence these ideologies are not the object of hate and critique. But Keynesianism just doesn’t go away, does it? Why not?

The very fact that Keynesianism has to be actively denounced in the anglosphere tells me that it works better than the status quo. Many of the socialist or populist policies in West-European Countries and some East-Asian countries such as Japan are Keynesian in nature. Need I remind you that the golden age of the american middle class (1940s-1970s) also occurred when the nation was run by people who believed in that ideology.

Look around you.. CONservatism, neoCONservatism, neoLIEbralism and Randism have failed and still people focus their critique on Keynesianism. Tells you a lot about their supposed intellectual objectivity, doesn’t it?

Comments?

  1. Test
    August 30, 2011 at 3:39 pm

    Nobody remotely respectable thinks the Earth is flat.

    Lots of academically people think Keynesianism works. These people control half of Congress, the editorial board of the New York Times, and most academic economics departments. Keynesianism is the majority view. There is a live debate about the subject. People who disagree with the view, therefore, are in the position of having to make their case. The anti-Keynesians haven’t won the debate yet, therefore they still engage in it.

    What about the “Reagan revolution” and Friedmanomics?

    Incidentally, if Keynesianism worked, wouldn’t there be an unambiguous real-world example of it working, somewhere? By now? Just one unambiguous example in the real world? Instead of it utterly, unambiguously, unmistakably, obviously failing every single time it’s ever been tried, with the single highly debatable exception of WWII?

    What the countries like Germany, France, Sweden, Norway, Japan?Heck, even China does it!

    WWII is a poor example: For one thing, every major Keynesian thinker predicted a massive depression in the US after the war, when the defense budget collapsed and all the servicemen were dumped on the job market. We got a boom instead, of course.

    WWII is a lousy example, but it’s all you’ve got. The New Deal would’ve been an excellent example. But it failed. TARP and the stimulus would’ve been good examples too. But they failed. The wars in Iraq and Afghanistan? Perfect examples. Except that they failed. Japan’s lost decade (OK, two decades now)? Textbook Keynes: Total failure.
    —-

    Japan’s failure stems from its uninnovative culture and mercantilism, not Keynesianism.

    You have absolutely no knowledge whatsoever of how European “socialist” (in fact, crony capitalist) economies actually work in practice, and you seem to have been missing a lot of news lately about how they’re failing. Did I say… “failing”? Yeah, failing. Crony capitalism has a built-in bias in favor of misallocating capital.

    I don’t see so many desperately poor people in those countries, neither do I see people going bankrupt because they got ill.. and they still live longer than americans.

    You want government to be your mother. You want to hand over arbitrary and unaccountable power to people who have no incentive whatsoever to treat you as anything but livestock. Those are not good ideas.

    The private sector in the USA has failed to deliver what it promised and they still have unaccountable corporate power, no incentives to improve and people who write laws for them. What is the difference?

    • Test
      August 30, 2011 at 4:58 pm

      Thank you for your thoughtful and courteous response. I apologize for my tone being a bit confrontational at first; your post got on my nerves more than I should have allowed it to.

      Reagan’s policies appear to have pulled us out of a recession. Possibly not, but the case for that is much, much stronger than the case for WWII acting as a Keynesian stimulus to fix the Great Depression — a view which leaves unanswered the question of how over a decade of Hooverian and Rooseveltian overspending didn’t work.

      The ‘new deal’ was meant to keep the USA together and prevent the rise of an american Hitler.

      Europe is more ethnically and socially homogeneous and cohesive than we are. Their minorities are as immiserated as ours. Look at Oslo, or the banlieus in France, or the Turks in Germany. This stuff is pretty well known on the right. Also, the European material standard of living is much lower than ours: “Poor” here is middle-class there, materially speaking. And they have much lower growth. And, finally, they are all going bankrupt. Their system is in very serious trouble.

      How many West Europeans would want to live in the USA? Visit.. sure, Live.. NO!

      The USA will implode into dysfunction before Europe goes down that path.

      Japan’s problem is dirigisme, full stop. Incidentally, I’ve been telling everybody who’ll listen that China’s going to hit the same wall Japan did, within a decade. I could be wrong, of course. But I’m betting money that I’m right.

      As for private enterprise… It’s not inherently good (Adam Smith had a good line about that). Far from it. It’s just that if everybody can choose who to do business with, then the stupid ones go the way of Borders and GM. Oops… OK, Borders and Pan-Am. And the Edsel, though Ford survived. And DEC. And many, many others. Capital flows to the ones who, in the opinion of a sufficient subset of the public, add more value than they consume. The virtue of this isn’t that it makes them all do a good job; of course it doesn’t. Look at Borders. What it does is remorselessly kill off the stupid ones, and so free up their capital and employees to engage in more productive work elsewhere.

      Look around you- Do things still work that way?

      No such effect restricts an irresponsible government, until it drives people to the point of revolution. Nothing starves stupid government, and nothing incentivizes it to improve. Individuals in government have an incentive to benefit only themselves. Never mind ideology or law. Look at the incentives. There have been times when public men took honor seriously enough for it to make a difference, but this is not one of them, and I’m not sure we’ve ever had such a time in the US anyhow. Most cultures never did. It’s rare.

      Governments in functional democracies do have some checks on their authority, unlike corporations.

      Also, business has a massive incentive to bribe government to stifle their competition, as Adam Smith very well knew. There is no systematic fix for that problem. When corrupt government becomes socially acceptable or even admired (as it is now in the West), chances are you’re just screwed. On the other hand, eighteenth-century Britian was staggeringly corrupt, and by the late 19th century they had developed one of the most honest civil services in history, and a genuine ethic of public honesty. God knows how that happened. It’d be nice if we could duplicate that trick. These days, it’d be nice if they could too.
      —-

      The question is not whether we can eliminate corruption, it is about containment and harm minimization.

      As for the “difference” between what we’ve got and a system even more topheavy with abusive government than we already have, I advise you to look at history and contemplate just how much hideously worse things have usually been for most people than they are now in the USA.

      So, anyhow, maybe you’re right. But even if so, you are not so obviously right that the debate is absurd. Not even close. There are very, very well-informed and intelligent people on both sides of this one — and some of the ones on your side, unlike Krugman and DeLong, are even honest.

      • PT Barnum
        August 30, 2011 at 8:40 pm

        First, the rabid scream of insane hatred. That’ll cow most people. If that fails, then we move on to “reasoning”.

        You are a worthless animal. Apology not accepted.

        And no, I don’t think you are a “reasonable person”. Any fucker who utters the lines “show me one example of Keynesianism working” is a liar. Notice I didn’t give you the out of “a fool” That’s cause you aren’t. You are a liar.

  2. Test
    August 30, 2011 at 4:29 pm

    Next up: Dissention discovers that you can always trust family courts — because the government always makes the best decisions.

    And then Dissention discovers that no-knock raids are a good idea, because you can trust government to act in the peoples’ interests.

    What’s next?

  3. A Equals A
    August 30, 2011 at 4:57 pm

    The reality is neither neoliberalism/conservatism and its variants (reaganism, tea party bs etc) nor Keynesian and its variants work. They both distort incentives (rewards and punishments), mis-allocate capital, and cause the pendulum to swing in favor of either the rich or the poor (or the middle class), with one class always losing and one always winning.

    The rich (although much maligned simply for being wealthy) are people too, and as such have basic rights, which includes the right to the wealth they have legitimately created on the free market. However neoliberalism skews the results (unfairly and unnaturally) in favor of the rich, predicably causing envy and re-distributive laws, its an inherently unfair system. What Advocatus would call a giant “ponzi scheme”.

    On the other hand, the chronically poor tend to have self-destructive behavior patterns unless mitigated by largess from the state which sustains those patterns, (taxes, redistribution) causing waste and mismanagement. The poor do not save and do not accumulate capital. They are typically disinterested in education and cannot invest. No amount (infinite?) of government will cause them to stop doing the things that cause them to be poor. Its just a never-ending cycle.

    The solution is to elimination any and all special privileges, advantages, laws, and any and all exceptions and to go back to the basic rules governing human societies. The basic rules for a functioning society are as follows:

    1) All individuals are sovereign actors (and all proper laws must recognize this fact directly or indirectly)
    2) No individual may use force upon another (unless in self defense)

    2) is dependent upon 1) and number 1) is a basic self-evident truth. It presupposes two things:

    1) We are individuals (self evident)
    2) We are sovereign (free will! also self evident in everything you do or think about)

    In other words, a laissez faire or “hands off” society and economy. Minimal laws except those pertaining to the basic rules of society and no inherent, class-based privileges or advantages (or special privileges of any kind). The issue of the poor in such a society would be mitigated by education (through donations) and awareness of the causes of poverty (lack of saving, investing and education). Rapid technological progress would mitigate poverty even further.

    The rich today are protected by economic moats thrown up by the welfare (Keynesian) state and its numerous controls and laws discouraging disruption and competition. Remove that basis and its fair game and more broadly distributed gains for everyone due to increased competition (for labor and consumers!).

  4. Webe
    August 31, 2011 at 5:20 am

    Keynesianism was already passé in the stagflationary seventies. Economic discussion centred on how the old policy levers were not working: inflation and unemployment were both going up, whereas these were traditionally viewed as a trade-off (phillips curve). In addition, the multiplier effect of government stimulus was steadily decreasing: how much government spending does it take to add a job — obviously there is a point at which it’s cheaper to just give people the money (as happened in the EU in the eighties with tobacco farm-subsidies to Greek farmers: costs were far higher than their incomes).

    That’s why control of economic debate switched to monetarism with their NAIRU (non-accelerating inflation rate of unemployment) and supply-side theories in the eighties.

    The central idea of “Keynesianism” is simple common-sense: counter-cyclical (deficit) spending by the government. When the economy tanks, the government spends money; when the government booms, the government saves money (slowing down the boom through higher taxes). This smoothes the severity of the boom-bust swings that have plagued “capitalist” industrial economies since at least the 18th century.

    The idea itself is ancient: in the Bible Joseph becomes a big shot by hoarding grain in the fat years, distributing it to the populace in the lean years. Along the way, the helps the Pharaoh gain prestige, popularity, and a lot of income.

    And it does work: income stabilizers (pensions, unemployment benefits) and bank deposit-insurance make the downswings less severe. Recessions in Europe have been less pronounced than in the US in recent times. Of course slowing the economy down in boom times has never been a popular policy among politicians or others, and is the reason the spending multiplier has historically decreased.

    The vitriolic attacks on “Keynesianism” are not about economic theory or policy, but about something ideological: whether government intervention in the economy (spending) is effective and/or desirable. Obviously government intervention can be very effective. Look at China. Look at Hitler’s Germany: after the Weimar implosion and severe economic dislocations exacerbated by the Great Depression, unemployment reached 34% in 1933. Without advocating Hitler’s economic miracle (he was an economic nincompoop), it is at least safe to say that government created credit had an effect. By the way, the people who voted for Hitler were not the unemployed disenfranchised masses — they voted communist. Hitler was seen as the answer to the upsurge of communism.

  5. Webe
    August 31, 2011 at 8:13 am

    >>Also, the European material standard of living is much lower than ours: “Poor” here is middle-class there, materially speaking. And they have much lower growth. And, finally, they are all going bankrupt.<>going bankrupt<<

    The ratio of public sector (federal, state, and local) debts and deficits to revenue in the USA are far higher than in the EU. For instance, in the US federal debt grew by 77% of revenue in 2010, reaching 626%. Comparable EU numbers are 20% and 182%. GDP/debt ratios are bogus, because they do not take into account the relative size of the public sector. Ratios to revenue are far more revealing, since expenditures come from income, not from GDP.

    Even in terms of the GDP ratios, in the US public sector debt (adding state and local government debt to be comparable to reported consolidated general government sector debt positions of EU members) is now 17.5/14.9 $tr = 117.5% of GDP (2010), not including about 5.5 tr$ off-balance sheet GSE liabilities (Fannie, Freddy, etc.). For the EU[27] this ratio is 80%.

    And then there's private sector debt. Here the US is no slouch either, easily surpassing Greece on a precentage basis.

    • Webe
      August 31, 2011 at 8:33 am

      Something screwed up in my browser here, should delete

  6. Webe
    August 31, 2011 at 8:26 am

    »Also, the European material standard of living is much lower than ours: “Poor” here is middle-class there, materially speaking. And they have much lower growth. And, finally, they are all going bankrupt.«

    Having lived and worked in the US, Canada, and Europe it is safe to say that this statement is simply flat-out false. In Europe, the poor are less poor and the rich are less rich. Median income is in the same order of magnitude. The general prosperity is higher. Real median incomes in the US have stagnated since the seventies!

    »going bankrupt«

    The ratio of public sector (federal, state, and local) debts and deficits to revenue in the USA are far higher than in the EU. For instance, in the US federal debt grew by 77% of revenues in 2010, reaching 626%. Comparable EU numbers are 20% and 182%. GDP/debt ratios are bogus, because they do not take into account the relative size of the public sector. Ratios to revenue are far more revealing. Even in terms of the GDP ratios, in the US public sector debt (adding state and local government debt to be comparable to reported consolidated general government sector debt positions of EU members) is now 17.5/14.9 $tr = 117.5% of GDP, not including about 5.5 tr$ off-balance for Fannie, Freddy, etc. EU member average is 80%.

    And then there’s private sector debt. Here the US is no slouch either, easily surpassing Greece on a precentage basis.

    • MaMu1977
      September 2, 2011 at 3:37 pm

      I agree. Having spent three years in Germany, the first thing that I noticed was the ridiculously cheap rents regardless of area. An apartment that would cost $2000 American (bare bones) in New York City would cost >1000 euro (with free Wi-Fi, renters-supplied water/sewage/heat and full furnishings.) my rural apartment cost $800 a month with my heat, garbage, water and free internet; in comparison, my rural American apartment cost $600/month, plus a $50 water/sewage surcharge, plus paying for my own heating oil (I lived in North Dakota, I used a *lot* of heating oil.) As another sticking point, my German apartment was a 2-bedroom whereas my American apartment was a 1-bedroom. Between my and my roommate’scontributions, we paid about 600/month for a fully-furnished with Wi-Fu German apartment, while I spent over $1000/month for a smaller American apartment once fuel costs and travel were added to the equation. It should also be noted that the cheapest available housing options were essentially method-lab laden trailer parks. OTOH, my equivalent-slummish German apartment was surrounded by people who had no problem with inviting their new neighbour over for dinner and fun.

  7. Webe
    August 31, 2011 at 8:32 am

    »Also, the European material standard of living is much lower than ours: “Poor” here is middle-class there, materially speaking. And they have much lower growth. And, finally, they are all going bankrupt.«

    Having lived and worked in the US, Canada, and Europe it is safe to say that this statement is simply flat-out false. In Europe, the poor are less poor and the rich are less rich. Median income is in the same order of magnitude. The general prosperity is higher. Real median incomes in the US have stagnated since the seventies!

    »going bankrupt«

    The ratio of public sector (federal, state, and local) debts and deficits to revenue in the USA are far higher than in the EU. For instance, in the US federal debt grew by 77% of revenue in 2010, reaching 626%. Comparable EU numbers are 20% and 182%. GDP/debt ratios are bogus, because they do not take into account the relative size of the public sector. Ratios to revenue are far more revealing, since expenditures come from income, not from GDP.

    Even in terms of the GDP ratios, in the US public sector debt (adding state and local government debt to be comparable to reported consolidated general government sector debt positions of EU members) is now 17.5/14.9 $tr = 117.5% of GDP (2010), not including about 5.5 tr$ off-balance sheet GSE liabilities (Fannie, Freddy, etc.). For the EU[27] this ratio is 80%.

    And then there’s private sector debt. Here the US is no slouch either, easily surpassing Greece on a precentage basis.

  8. Webe
    August 31, 2011 at 8:34 am

    Same here, something screwed up with angle brackets or clipboard

  9. G. Bush
    August 31, 2011 at 8:42 am

    Cut and paste comments from the business school. Can I copy them for my c.c. econ class?

  10. Mr. Stricter
    August 31, 2011 at 9:56 am

    To those who fear a large and intrusive nanny state, it doesn’t require one to cut people a check and fix many of the issues were are facing economically

    Social Security, Food Stamps and such are cheap to run, fairly non intrusive and very effective at rescuing poverty right now. Simply move to social credit and cut every US citizen a check every month, taxes paid on income above that. Problem reduced.

    And no the logistics are not that hard. We already have 60 million people on social security. Its not that hard to scale.

  11. Anon
    August 31, 2011 at 3:06 pm

    It’s simple.

    GDP = C + I + G + NX

    G has a multiplier that is less than 1.

    Therefore, Keynesianism doesn’t work.

    • Mr. Stricter
      August 31, 2011 at 3:24 pm

      Economics is not a rational science and not really amenable to such simplistic formulas.

  12. September 1, 2011 at 5:04 am

    I see the present ideas as a sort of predictable mutation of Keynesianism
    That is, the perpetuation of measures that Keynes himself only prescribed for emergencies.
    Keynes was no fool but perhaps he should have understood the huge temptation to abuse the corrective measures he proposed. “Emergency powers” have a nasty habit of sticking around. There are few Cincinnati in history.

    As for economics, can a science be a science if it is not rational or objectively testable in some way?

    No different than quantum physics right now, I suppose.
    For decades now, seems like they just stumble on propositions that “work” with only very vague ideas about why it works.
    I have a friend who is a physics grad student specializing in superconductors. I get the idea from him that no one really knows exactly how they work or how to predict what materials will be superconductors or at what temperature.

    Seems like the sciences are returning to the sort of trial and error that was typical of traditional medicine, ancient astronomy, and alchemy.

    From what I can tell by wiki clicking.
    C – is consumer spending.
    I – is producer investment.
    G – is government spending (what is the ratio multiplier here?)
    NX – the net balance of trade. (obviously can be negative)

  13. John
    September 3, 2011 at 3:49 am

    “Today few people see feudalism, absolute monarchy or communism as viable and hence these ideologies are not the object of hate and critique. But Keynesianism just doesn’t go away, does it? Why not?”

    You have made the mistake of assuming this moment in time is a fixed special event and the future will be the present. Your argument could have been made 30 years ago about communism or 350 years ago about absolute monarchy. It’s like a man who wishing to fly, jumps out of a plane wearing a wingsuit and no parachute. Just because he is flying in the here and now dosn’t mean it’s a good idea.

    As to why it dosn’t go away, that’s because Keynesianism attempts to give a rational economic justification for state intervation in the economy and the creation of money out of nothing and there are a lot of groups who benefit from that. Think, every govenmeant worker, the entire healfcare industry, the education industry, the financial industry, most lawyers, accountants, lobbyist, those on welfare, medicare, mediaid, Big agriculture, biotech, pharma, oil and of course just about every politician at every leval on both the left and right.

    While the effects of Keynesianism may seem good and very good the higher up the economice food chain you are. In the end like a man using a wingsuit without a parachute, reality will interced in a very messy way. Still the theory behind Communism being able to work was disproven in the 19th century, yet it was still tried and lasted 80 odd years. Keynesianism didn’t really didn’t get started until after WW2 so if it lasts the same length, we have a generation of fun to look forward to. As keynes unfortunatly wasn’t a total imbicile, i’ll leave the last words to him ‘But this long run is a misleading guide to current affairs. In the long run we are all dead. ..’

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