Sheldon Richman expresses a grudging
admiration for the staying power of Keynesian economics. One explanation is that Hayek et al. made people feel gloomy, with their insistence that misallocations of resources had to work themselves out before the economy could return to health. Who wants to wait for that to happen? We need jobs now!
Rather than getting bogged down in an attempt to explain the dynamics of the business cycle—a subject that remains contentious to this day—Keynes focused on a question that could be answered. And that was also the question that most needed an answer: given that overall demand is depressed—never mind why—how can we create more employment?
Indeed, if you’re trying to end mass unemployment, why would you want to get bogged down trying to understand what actually caused the mass unemployment? It’s not as though the cause could be expected to shed light on the remedy.
Enter the era of stimulus spending, which is always about to create sustainable jobs, if we just keep increasing it. In some fields, unexpected results might lead us to rethink our theories of causation. Well, not in education, or child-rearing, or climate science, of course, but there must still be some fields somewhere that remained tethered to reality on some level.
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Enter the era of stimulus spending, which is always about to create sustainable jobs, if we just keep increasing it.
There's another contaminant in the mix, though, that interferes with actual understanding. Sort of like Soviet Russia Communism was never Marxian communism, so today's (even FDR's) Keynesianism has little to do with Keynes' Keynesianism.
What Keynes proposed in times of economic distress--from reduced aggregate demand, mind you, not from other causes--was temporary deficit spending to provide demand stimulus. This was from two factors: permanent anything loses its stimulative effect; stimulus being possible only from the shock effect of its suddenness and short life, and from his own recognition that governments must pay their debts if they're to avoid the more serious economic distress of runaway inflation; hence a continued need to keep deficits temporary so as to keep resulting debt under control.
Whether true Keynesianism could work (I think not, but that's another story) has never been tried empirically. But spending more money is a neat way to create dependency and buy votes. Sort of like bread and circuses.
Eric Hines
"Stimulus" could maybe work if it were focused on *buying stuff the government will need anyhow, but buying it earlier than it would otherwise be acquired.* Build your next aircraft carrier in the middle of a recession, and you'll save more on labor and material costs than the amount of interest you'll pay for spending the money 3 years earlier than planned. Ditto for roads, airports, etc.
The problem is that this never happens in practice...the availability of stimulus Q$ leads to spending on things that are *not* needed and are sometimes even positively harmful.
In any event, the problem with the US economy these days is NOT mainly a matter of the business cycle. Failed public schools and dysfunctional colleges create a huge cost burden on everyone and everything, while producing graduates who are often borderline illiterate (for K-12 schools) or lack the skills needed for serious professional work (for the colleges.) Overregulation and crony capitalism detract from efficiency in all sectors, though in some more than others...the cultural hostility toward manufacturing has led to particular harm to this sector. The litigation boom has both direct and indirect costs and is a huge tax on the economy. And so on. These things are not business-cycle-related, but are rather a "secular trend," as economists would put it.
David, I'm glad to see you back here. We haven't heard from you in a while.
Free-market supporters sometimes speak as if the market works relatively quickly, and for people with short attention spans (or more forgivably, with bills to pay) that sort of long-term fairness is not a strong selling point.
As with any entropic system, if you keep adding energy from the outside - slave labor, stimulus spending, true believers - you can go a long way before things finally collapse.
I don't support the free market just because I think it is the Best System, but because it is like gravity. Yet I admit that it is unreasonable and unfair in the short run much of the time.
"Yet I admit that it is unreasonable and unfair in the short run much of the time."
Yeah, well, as I tell the kids and as it was told me- Life's not fair. Why should the market be different?
It's not the function of the market to be fair, only to use input from the broadest possible swath of humanity to set prices so that they balance supply and demand. Fairness is an important component of all kinds of other human institutions, however, and could usefully be addressed there. For instance, it was unfair to bar blacks from learning to read and write, or to deny them entrance to schools regardless of their ability, or to apply a stricter set of rules of evidence to their positions in court. There were good reasons to stop doing those things.
So now what? It's also not "fair" to lock black communities into dependence on welfare. It seems to have destroyed their culture to a horrifying degree over the last half century. The idea that we could increase the fairness in the world by writing more checks to black people is completely baffling. How long do we have to try these things before we actually look at the results?
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