Vulgar Keynesianism

by Don Boudreaux on March 17, 2009

in Economics

Among the important points Bob Higgs makes here is the one that I make here, but Bob does so much more effectively than I can ever hope to do.  Here’s an especially important passage from Bob’s essay:

In fact, “the economy” does not produce an undifferentiated mass we call “output.”  Instead, the millions of producers who bring forth “aggregate supply” provide an almost infinite variety of specific goods and services that differ in countless ways.  Moreover, an immense amount of what goes on in a market economy consists of dealings among producers who supply no “final” goods and services at all, but instead supply raw materials, components, intermediate products, and services to one another.  Because these producers are connected in an intricate pattern of relations, which must assume certain proportions if the entire arrangement is to work effectively, critical consequences turn on what in particular gets produced, when, where, and how.

These extraordinarily complex micro-relationships are what we are really referring to when we speak of “the economy.”  It is definitely not a single, simple process for producing a uniform, aggregate glop.  Moreover, when we speak of “economic action,” we are referring to the choices that millions of diverse participants make in selecting one course of action and setting aside a possible alternative.  Without choice, constrained by scarcity, no true economic action takes place.  Thus, vulgar Keynesianism, which purports to be an economic model or at least a coherent framework of economic analysis, actually excludes the very possibility of genuine economic action, substituting for it a simple, mechanical conception, the intellectual equivalent of a baby toy.

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{ 50 comments }

Oil Shock March 17, 2009 at 3:23 pm

Very well said.

Randy March 17, 2009 at 3:24 pm

Don,

I was actually thinking you did a pretty good job. But, yeah, "vulgar Keynesianism", "the intellectual equivalent of a baby toy", really hits the mark.

muirgeo March 17, 2009 at 3:31 pm

"As noted previously, they prefer easy money not only because it lowers the cost of financing the government’s deficit spending, but also because it induces individuals to borrow more money and spend it for consumption goods ― such increased consumption spending being viewed as always a good thing, notwithstanding the recent near-zero rate of saving by individuals in the United States."

Wow! I think he's confused the Keynesian's with the Trickle Down Reaganites here. Talk about Straw Men…

There is no reason I can think of as to why this Depression should not be as Great as the last republican lead one. The finance and Banking system has completely collapsed and so far we have not seen 20% unemployment.

I just wonder how much the bailouts, the FDIC, the Social security and Unemployment have helped prevent the same results Coolidge and Hoover got us.

Of course we are not out of this yet and Higgs may be right. But if things don't get a whole lot worse and indeed if we recover in 2-3 years he'll have some splaining to do.

Sam Grove March 17, 2009 at 3:35 pm

As I see it, Keynesianism is about justifications for political interventions in economics.

It's about redistribution rather than production.

It's the economics of mercantilism.

Charlie March 17, 2009 at 4:17 pm

Why is he attacking "vulgar keynesians"? Every macroeconomist that has won a nobel prize and just about every economist in general is writing models using K for interchangeable capital stock and L for interchangeable Labor. News flash – economic models are models not reality. They are simplified.

People have pushed the simplification in many ways, and it often doesn't matter.

I had the pleasure of seeing Bob Lucas a couple of years ago at my graduate school. He presented a model and there was no capital in his production function and some old professor (don't even know who he was) said, "your workers produce with no capital" and Lucas replied, "they always say you have the fruit, but where are the trees. I can add the trees, a graduate student can add the trees, it is a graduate student exercise."

Daniel Kuehn March 17, 2009 at 4:22 pm

Are you suggesting that Keynes was somehow unaware of these microrelationships? I never understood the essentially Austrian argument that you aren't allowed to talk about aggregates because decisions aren't made at the aggregate level. Just because decisions aren't made their doesn't mean that you can't scientifically describe aggregates.

You can discuss the operation of human anatomy without reducing every discussion to underlying chemistry – or to the atomic level – or to the sub-atomic level where the action REALLY happens. Why are we able to discuss human anatomy scienitifically? Because although everything about the physical human body is a result of the physics of sub-atomic particles, we can still scientifically study what aggregates of those particles do.

Why can't we do the same thing with an aggregation of economic actors?

What are your thoughts on Keynes's "Treatise on Probability" where he does discuss what the Austrians call "human action"?

You set up an amazingly pitiful Keynesian straw-man and you vanquish him with admirable wit and cynicism. Now what do you have to offer in the area of real Keynesian economics that macroeconomists actually deal with day in and day out?

Daniel Kuehn March 17, 2009 at 4:23 pm

Sam -
If you think Keynes is talking about redistribution rather than production you REALLY REALLY REALLY need to reread The General Theory.

Oil Shock March 17, 2009 at 4:26 pm

Yes, it was a republican depression from 1929 to 1932, followed by a longer Democratic Depression from 1933 to 1946. Then in 1946, Keynesians worried about the prospects of "GDP" contraction and staggering unemployment as government stopped destroying wealth. Government indeed cut back and we started prospering again, much to the disappoinment of the Keynesians. Then LBJ came in and tried to spend our way to prosperity, started the inflationary bust of the 70s.

muirgeo March 17, 2009 at 4:29 pm

"As I see it, Keynesianism is about justifications for political interventions in economics."

I AGREE

"It's about redistribution rather than production."

No, its about or should be about rules and effeciency… which can actually proomote economic growth.

"It's the economics of mercantilism."

No mercantilsm sered kings… what we are doing is serving ourselves since we are self-ruled… or supposed to be.

Posted by: Sam Grove

Randy March 17, 2009 at 4:34 pm

"Why can't we do the same thing with an aggregation of economic actors?"

Because people have a right to make their own micro decisions without interference from dumbass politicians who want to treat them as aggregate.

Don Boudreaux March 17, 2009 at 4:36 pm

Muirgeo,

Do I understand you correctly when you say, in the comment just above, that because we are "self-ruled," mercantilism serves us (presumably well)?

Don

Lee Kelly March 17, 2009 at 4:38 pm

Suppose that every entrepreneur noticed Obama's popularity, and decided to direct resources toward creating statues of him.

Resources that would otherwise go toward other goods and services are instead used to create millions upon millions of statues. For many years, countless workers become employed in the Obama factories, or providing raw materials, or training factory workers, or distributing statues, and so on. Whole communities and organisations become entirely focused upon this most important of tasks–creating statues of the Great Obama.

When the time comes to pay back their creditors, the shelves of stores around the country are packed with bright, gleaming, Obama statues, with his multicultural smile beaming out millions of times across crowds of expectant shoppers. And after incurring such large debts to produce their expensive output, a considerable price is attached to each statue.

But the crowds are not forthcoming with feverish spending. They cry out that there are shortages of food and shelter, because so many resources were instead directed toward creating statues of Obama. They look upon the dollars in their hands, reflect upon the toil they undertook to earn them, and judged that no statue of Obama is worth it–there are more pressing concerns.

The entrepreneurs are distraught. They cannot pay their creditors become hardly any statues of Obama have been sold; millions sit upon the shelves untouched by shoppers. A great economic catastrophe is upon the nation. A call rings out across the land that something, anything, must be done, and all eyes turn to the man immortalised in so many statues: the Great Obama.

The greatest economic minds convene for five minutes before declaring the problem to be insufficient aggregate demand. The economy, they say, will collapse unless demand for the Obama statues can be stimulated.

brotio March 17, 2009 at 4:39 pm

"I just wonder how much the bailouts, the FDIC, the Social security and Unemployment have helped prevent the same results Coolidge and Hoover got us." – Mierduck

Gee, just last September, Mierduck was opposed to the bailouts. He told us so in his best Dezi Arnaz impersonation, "Yes, NO BAILOUT… but I thin we are too late.
Posted by: muirgeo | Sep 29, 2008 10:38:30 AM."

Someone on Mierduck's DailyKos Teleprompter must have informed him that the Obamessiah is in favor of bailouts. Mierduck is now implying that he's always supported bailouts.

Oil Shock March 17, 2009 at 4:40 pm

we are self-ruled

at least I would like to be self ruled, but Keynesians want to rule me and rule others.

should be about rules and effeciency…

What if rules and efficiency are not compatible with self rule, which one would you pick? I want to hear it from you.

Oil Shock March 17, 2009 at 4:43 pm

You can discuss the operation of human anatomy without reducing every discussion to underlying chemistry – or to the atomic level – or to the sub-atomic level where the action REALLY happens. Why are we able to discuss human anatomy scienitifically? Because although everything about the physical human body is a result of the physics of sub-atomic particles, we can still scientifically study what aggregates of those particles do.

Sure, since you know everything there is to know about the human body (scientifically), why don't you create one in the lab, and try to control every subatomic particle in that body? Muirgeo is a physician, he try to help you out.

Daniel Kuehn March 17, 2009 at 4:46 pm

RE: Randy
"Because people have a right to make their own micro decisions without interference from dumbass politicians who want to treat them as aggregate."

Dude – chill out. We're talking about Keynes and economic theorizing. The issue is – is it valid to talk about and describe the behavior of economic aggregates scientifically. You can answer "Yes" to that and still say that we should be free from interference by dumbass politicians.

After all, you can be a Keynesian and agree with everything he said about how the economy works, but still politically say "I don't think Keynesian policies are right or appropriate, although I agree with him in theory that they will work".

And my point is – Austrians have this bizarre aversion to aggregation, which is done in LOT'S of other sciences.

And answer me this question – Austrians like to reduce everything to the individual human action. But isn't that human action the result of cellular activity in the brain and DNA? In that case, isn't microeconomics even too far aggregated? Shouldn't we all be chemists or physicists?

Of course not! Why? BECAUSE AGGREGATES ARE A VALID FIELD OF SCIENTIFIC INQUIRY!!!!

Daniel Kuehn March 17, 2009 at 4:48 pm

Oil Shock -

I'm just talking about what DOCTORS do every day. All human anatomy is essentially based on the physics of sub-atomic particles.

But doctors seem perfectly willing to study aggregations of those particles.

Why are Austrians so afraid to do the same thing? It's ridiculous!

Don Boudreaux March 17, 2009 at 4:48 pm

To Daniel Kuehn:

I can't speak for Bob Higgs, but as for me, I have no idea if Keynes was or was not aware of the underlying microeconomic relationships that underlay his aggregates. But I AM quite certain that he was either unaware of them or, if he was aware of them, he completely failed to understand their importance.

Recall that Joan Robinson reported Cambridge's own Gerald Shove (1888-1947) lamenting that "Maynard had never spent the twenty minutes necessary to understand the theory of value."

And as regards your anatomy-chemistry analogy, it misses its mark. A more-appropriate analogy would be to say that the medical equivalent of Keynesian economics is a theory that overlooks the importance of the health of individual humans and instead focuses almost exclusively on aggregate measures of health. Trying to cure illnesses by addressing directly only the likes of the the country's mortality rate, or the country's morbidity rate will do little to cure real flesh-and-blood individuals of whatever ails each of them.

Lee Kelly March 17, 2009 at 4:54 pm

Daniel Kuehn,

While an aggregate can be derived from some particulars, the particulars cannot be derived from the aggragate. The aggregate is less informative than its constituent particulars. Sometimes this is unimportant. Sometimes the aggregate is all the information needed to make a sound decision. Sometimes it is beyond our ability to be aware of the constituent particulars.

When a decision can only be correctly made with an understanding of the particular constitution of an aggregate, the aggregate itself becomes insufficient to inform decision-making. And when it is also beyond the ability of anyone to be aware of the relevent particulars, using such macroeconomic measures to guide economic policy is foolhardy. Austrian economists, like Hayek, however, pointed out that the problem can be solved by the free-market, (or to use Hayek's term, 'the extended order'), which can employ the dispersed knowledge of millions to solve the problem.

With the government, this most important of scarce resources, knowledge, distributed among millions of individuals, will forever be underemployed, and to the great detriment of our prosperity.

Daniel Kuehn March 17, 2009 at 4:59 pm

Don -
You're describing epidemeologists and demographers, who have done a lot of good work. You're also throwing in that these epedemeologists and demographers would "overlook the importance of the health of individuals" – which is a huge assumption on your part.

I think medical doctors can be said to "overlook the importance of particle physics". They know a lot of chemistry, but I doubt they get much more detailed than that. No quantam mechanics in "Grey's Anatomy". And yet, sub-atomic particles impact EVERYTHING that a medical doctor does. Why have doctors gotten away with ignoring them? Because they can apply the scientific method to aggregates and so can we.

As for Keynes and micro-foundations. What about the Treatise on Probability? What about his admitedly crude discussion of animal spirits? What about his discussion of the propensity to consume? Are you just ignoring all of this? Keynes was an early pioneer in what is now called behavioral economics. You may dispute his conclusions, but you can't just throw out economics based on aggregates so easily. It's astounding to me that you're really serious about this!

Randy March 17, 2009 at 5:02 pm

Daniel,

"You can answer "Yes" to that and still say that we should be free from interference by dumbass politicians."

In my experience, politicians only talk about aggregates as a justification to treat people like aggregate. I do not dismiss lightly how conveniently Keynesiansism serves as a rationalization to do what politicians always want to do. And by the way, I'll "chill out" when they stop.

Sam Grove March 17, 2009 at 5:04 pm

If you think Keynes is talking about redistribution rather than production you REALLY REALLY REALLY need to reread The General Theory.

I wasn't talking about Keynes.

I was talking about Keynesianism, you know, what politicians and the court economists practice.

Keynes doesn't matter much anymore, the ball has been picked up by the political class and they carry it wherever they want.

Keynes is their cover story for justifying control over us mere mortals.

Daniel Kuehn March 17, 2009 at 5:09 pm

Lee Kelly – I agree 100% with what you start out saying. Never said anything otherwise.

I'd also say that I don't think any Keynesian policy is going to be a silver bullet.

But to say that Keynes didn't consider individual action is an intellectual dishonesty, regardless of any Cambridge quotes you can dredge up. He described a deflationary dynamic that would, in theory, prevent the market from correcting itself. He based the theory of that deflationary dynamic on a theory of individual action. He perscribed some aggregate solutions that could break the deflationary dynamic. And when markets operated normally he advocated the market mechanism. I'm not sure how else to say it than that.

Perhaps you disagree with his essentially "microeconomic theories". Perhaps you disagree that such a deflationary dynamic is even possible. That can be fought out. But you can't say he just manipulated some aggregates and left it at that. You also can't claim that he somehow didn't recognize the allocative efficiency of markets, just because he thought sometimes those markets could break down. You're setting up a straw-man that never existed.

Sam Grove March 17, 2009 at 5:10 pm

The human body, while quite complex, is not nearly as complex as an economic system.

A doctor can see an entire human body, measure the parameters of its functioning, etc. And we are now learning that aggregate approaches to health are insufficient in many cases as there is great variation in physiology from person to person.

Who can know even a fraction of the complexity of all the relationships that constitute an economy?

Daniel Kuehn March 17, 2009 at 5:11 pm

Sam -
You're not even talking about "Keynesianism" – you're talking about something you read in Time magazine.

I can't speak to that – never read that article.

Daniel Kuehn March 17, 2009 at 5:14 pm

Sam -

Right… every analysis has to be qualified by how well we can measure what we're talking about. To the extent that we can measure it poorly, it will be a relatively less accurate analysis.

I'm not really sure what you're getting at. Yes it's imperfect, but we do have a lot to work with. Are you saying we just throw back our hands and don't even try?

I think we oughta do what we can and caveat everything. Is that really so crazy?

Don Boudreaux March 17, 2009 at 5:20 pm

I have never disputed that Keynes was a great pioneer in probability theory. I do dispute that he was a great economist.

His ruminations on animal spirits and on the marginal propensity to consume don't come remotely close to being sufficiently micro-theoretic. The important question is how do individual choices interact with each other — conflict, mesh, adjust, create synergies — to bring about material prosperity?

Recognizing various psychological properties of individual human decision-making is important, but such recognition remains chiefly in the province of psychology and not economics — at least not in that all-important species of economics that aims to understand how individual choices create results that are no part of anyone's intentions (such as, say, a production structure that creates pencils).

Economic growth and widespread material prosperity require enormously complex adjustments at very detailed levels. The Austrian notion of capital, of course, is a paramount example of this fact that Keynesians (and monetarists) ignore. Capital, in fact, is not a blob that only grows, shrinks, or remains unchanged in size. It is a hugely vast complex of specifically adjusted relationships, both physical and commercial, that aggregative concepts mask.

Lee Kelly March 17, 2009 at 5:20 pm

Daniel Kuehn,

I do not care what Keynes thought. What is today called 'Keynesianism' I find objectionable. But how much Keynes would endorse that … I do not know, and nor am I concerned. The last thing I plan to do is try and read anything that Keynes wrote. My time and money are finite, and there are many, many, many more writers who I would sooner read. Keynes is a notoriously poor writer, and I do not expect to draw enough of interest from his work for it to be worth the effort.

I hardly any refer to any particular thinker or writer by name, especially to speculate on their thoughts and feelings.

Daniel Kuehn March 17, 2009 at 5:24 pm

"the last thing I plan to do is try and read anything that Keynes wrote"

Are you joking Lee??? I understand your time is finite, but if you're so adamantly opposed to reading Keynes you probably shouldn't be blogging about it.

And Don – aren't you an economics professor?!?!? Let me let you in on a secret – Keynes's "Treatise on Probability" actually has a very misleading title. It has little to do with what we think of as "probability and statistics" today. It's all about behavioral psychology and individual judgement of risks, probabilities, etc. Perhaps you have no desire to read anything that Keynes wrote either.

This is incredible – I start posting on a blog that is supposedly talking about "vulgar keynesianism" and it turns out that nobody wants to talk about Keynes. Absolutely unbelievable.

Oil Shock March 17, 2009 at 5:27 pm

He described a deflationary dynamic that would, in theory, prevent the market from correcting itself.

Such dynamic, if it were true, would have prevented humanity from ever get past hunter-gatherer arrangements.

Sam Grove March 17, 2009 at 5:30 pm

Sorry, I don't read Time.
I'm referring to the constant references to Keynes and "Keynesian stimulus" as a story to describe and promote government as a master regulator of economic functioning.

The whole idea of a "stimulus" as currently discussed, accepts the validity of men with guns, authorized by voting, to take wealth from those who produce it to sustain facets of industry that need reorganizing.

The whole thing treats the high costs of political government as somehow transparent in the political machinations.

The facts appear to me as supporting the wild notion that the largest actor in growing misallocation of resources is the one agency that people want to allocate even more of the resources that we create, into things that people do not choose except when men with guns point them at us.

I think there is something that politicians can do to ease us through this mess, but it is the one thing they are least likely to do: cut spending, end the empire.

Oil Shock March 17, 2009 at 5:34 pm

But doctors seem perfectly willing to study aggregations of those particles.

Why are Austrians so afraid to do the same thing? It's ridiculous!

Thank God doctors are not Keynesians in their own profession. Can you imagine if doctors tried force feeding as a solution for every disease or medical condition?

Austrians are not trying to look at subatomic particle,however they do try to go beneath to level that is meaningful.

Lee Kelly March 17, 2009 at 5:44 pm

Daniel Kuehn,

I haven't blogged about Keynes. I haven't even commented about Keynes. Except to say that I object to modern "Keynesianism", and have better things to do than read Keynes's work, I did not mention Keynes at all.

My first post, and first response to you, did not mention Keynes or Keynesianism at all. I merely pointed out that aggregates are sometimes uninformative when making a decision, because the relevent particulars are ignored. Moreover, when the relevent particulars are beyond the ability of any centralised authority to comprehend, a problem may be best solved by a decentralised system like the marketplace. Whether Keynes would or would not have disagreed with this is not my concern. I am neither trying to criticise the man nor defend him. I am merely interested in the economic problems themselves, regardless of who said, read, heard, or claimed what in the past.

Don Boudreaux March 17, 2009 at 5:48 pm

Daniel Kuehn,

Why do you jump to the conclusion that I am unaware of the thrust of Keynes's work on probability theory? In fact, I am quite aware of it and nothing in any earlier post of mine, when fairly read, suggests that I presumed that Keynes's explored only the higher mathematics of probability theory. JMK is widely regarded as a pioneer in what is (broadly!) called probability theory. And I am insufficiently expert in that branch of inquiry to dispute this widely held expert opinion.

As for having read Keynes's works on economics, I've read and studied, cover to cover, his General Theory and his The Tract on Monetary Reform. I've also read several of his academic (and popular) articles (including his collections of Essays). I confess that I've not read his Treatise on Money or any of his other books.

Lee Kelly March 17, 2009 at 5:48 pm

Daniel Kuehn,

If it makes you feel any better, I haven't read much of Hayek's work either (The Road to Serfdom and The Fatal Conceit), and none of Mises's or Rothbard's, and nor do I plan to in the forseeable future. So Keynes is in much better company than he probably deserves.

Mostly, I just like to sit and think. It's more fun than reading.

Morgan March 17, 2009 at 5:52 pm

Daniel Kuehn:

No, the physician doesn't need to know particle physics, but he does need to be able to distinguish a broken leg from sepsis.

I take it that Austrian economists would argue that a Keynesian view of "economic health" is like a high-level view of the symptoms of the disease without any understanding of what causes these symptoms – or at least like a model of treatment that denies that the cause means all that much, and says that treating the symptoms is all that matters.

So now we have doctor Obama and his team prescribing quack cures for various symptoms – "well, he's bleeding out the nose, let's stuff some bandages up there", "he's bleeding out the rectum as well, let's stuff some bandages up there, too".

Except, of course, that these bandages are actually other part of the patient's body, which have to be torn from one place to be applied elsewhere. So replace "bandages" in the above sentences with "eyeball" and "kidney", and you'll be closer to the truth as I see it.

muirgeo March 17, 2009 at 6:02 pm

"by a longer Democratic Depression from 1933 to 1946. "
oil Shock

When you refer to a period of increasing production, increasing GDP and increasing jobs as a Depression you know you've lost the debate. But whatever it takes right?

Oil Shock March 17, 2009 at 6:10 pm

If you line up all the unemployed and shoot them, you can solve the problem. If you just pay people to dig ditches and fill them up, GDP will calculate it as production. Precisely for the reasons discussed in this thread. GDP deals with activity, not accomplishment. Making bombs and dropping them to destroy property, doesn't improve people's lot in life.

If you practice medicine the way you post about economics, many of your little patients will die.

Yes, the secret of understanding it to look below the monetary aggregates to find out what is going on with the structure of production.

Yes, what ever it takes to spread the truth.

hutch March 17, 2009 at 6:10 pm

just a thought on the medical metaphor that's been used. don't doctors basically diagnose based on the "macro" level and treat based on the "micro" level? they observe what's going on, identify the problem the best they can, and prescribe medicine or other treatments that are meant to do their work at the cellular level, even if the doctors themselves don’t fully understand exactly how it works. they can trust that someone else has done the research.

i think the problem most people here have with keynesianism (at least as it's being employed to justify the stimulus and other measures) is that it's akin to trying to fix the disease without understanding what's causing it first (to say nothing of how the treatment will effect the other physiological systems). we have politicians and economists in washington acting as doctors but they don’t necessarily know what’s causing the problems, nor do they seem to care.

Lee Kelly March 17, 2009 at 6:14 pm

muirgeo,

Do a kind turn for your fellow man, an altruistic act, a honorable deed, and spare us the party line today.

Don Boudreaux March 17, 2009 at 6:15 pm

Muirgeo,

You're out of your league, buddy, when it comes to economic history.

Lee Kelly March 17, 2009 at 6:21 pm

hutch,

Marco, micro, mediumro, gaganticro, minituro … nought but relative distinctions. What is and is not macro, micro, or whatever else simply depends on what level of the system you are studying. Macro for Jim is micro to John, because Jim is studying biology and John is studying biochemistry.

But it doesn't really matter. At some level or other, properties occur in systems which do not apply to its constituent parts, and different properties at different stages. Distinctions like macro- and micro-economics is great way to divide economics departments and classes, but it's mostly not important.

Methodological reductionism is good practice (metaphycisal reductionism not so much).

hutch March 17, 2009 at 6:35 pm

lee,

i'm not sure i get your point. i was only saying that daniel kuehn's discussion of doctors isn't very helpful. like i said, doctors diagnose at the aggregate level but treat at the cellular level. you can't treat a problem at that level, however that level happens to be defined, without understanding, to one degree or another, what's causing it. i think it's safe to say that a bunch of folks in dc don't (nor will they ever) have enough information to treat a recession, let alone with politically-targeted spending. believing a "keynesian" stimulus will be effective is to see an aggregate and attempt to treat it without understanding what's going on behind it. it's one thing to study the system. quite another to prescribe something based totally on your understanding of what's going on at the level you observe.

Daniel Kuehn March 17, 2009 at 6:35 pm

I just got home from my commute and feel no desire to respond to all of this. I imagine my answers are fairly predictable.

One thing I'm a little surprised at that came up in Lee Kelly's response, though, is that discussion of Keynes himself would be so foreign in a discussion of Keynesianism. Obviously it has changed – but I thought it would be equally obvious that he is still relevant to the discussion.

muirgeo March 17, 2009 at 6:38 pm

The entrepreneurs are distraught. They cannot pay their creditors because (sic) hardly any statues of Obama have been sold; millions sit upon the shelves untouched by shoppers. A great economic catastrophe is upon the nation. A call rings out across the land that something, anything, must be done, ….

Posted by: Lee Kelly

Wait a minute… it sounds to me like you are describing the CDO's created and pushed by the private market and Wall Streeters.

muirgeo March 17, 2009 at 6:43 pm

should be about rules and effeciency…
What if rules and efficiency are not compatible with self rule, which one would you pick? I want to hear it from you.

Posted by: Oil Shock

If I wanted to live by my own rules I would live alone in the wilderness or on my own island and I would stop complaining I would shut the hell up about following the rules set democratically by society based on rules because for some self centered reason I think I should be exempt from the rules of that society and yet entiled to all the privledges of living in such a society.

Martin Brock March 17, 2009 at 6:50 pm

In fact, “the economy” does not produce an undifferentiated mass we call “output.”

Right. It doesn't, but it does produce many different goods, and markets do assign each of these goods a dollar value (or a value in some other monetary unit), and we can compare the total of all of these values to the total entitlement of consumers to purchase the goods.

Furthermore, half of the individuals in an economy may govern all of the economy's non-human resources, and these proprietors may obligate themselves to produce and deliver fruits of these resources only to other members of this half of the economy.

This closed network of obligations constraining the use of productive resources limits demand for the labor of the other half of the population, even if the other labor could add value to the resources.

The real, potential marginal product of the other labor does not create the deficit of "aggregate demand". The promises made by all of the proprietors to one another creates the deficit, as when statesmen promise one another generous pension benefits or vainglorious "victory" in imperial wars (or both) and then starve much of the population in their efforts to extract the benefits.

These promises can be statutory or contractual or some combination of both. The point is that they're only expectations that statesmen will try to force into realization, and these forces can so constrain expenditures, toward consumption rather than investment, that they effectively rule out the productive employment of many resources.

That's "inadequate aggregate demand". It's not a nonsense notion premised on the fungibility of different goods. It's a sensible notion based on the fungibility of different dollars and the rigidity of forcible proprieties.

Good are differentiated from other goods, but dollars are not undifferentiated from other dollars, and all goods are valued in dollars, and contractual and statutory obligations often are expressed in terms of these indistinguishable dollars, not simply in terms of distinguishable goods. You can't possibly understand the significance of monetary aggregates without first understanding this fact.

Thus, vulgar Keynesianism, which purports to be an economic model or at least a coherent framework of economic analysis, actually excludes the very possibility of genuine economic action, substituting for it a simple, mechanical conception, the intellectual equivalent of a baby toy.

Maybe "vulgar Keynesianism" does. Since "vulgar Keynesianism" is a political construct, designed specifically to be rebutted, this fact is not surprising.

Oil Shock March 17, 2009 at 6:58 pm

Wait a minute… it sounds to me like you are describing the CDO's created and pushed by the private market and Wall Streeters.

Yes, since 1990s, with the cheap money provided by the Fed, with it's NY division conveniently located close by.

Oil Shock March 17, 2009 at 7:01 pm

all the privledges of living in such a society

"Life, Liberty, and Pursuit of happiness" are my constitutional right, not privilege.

If you don't like where I go to church ( or not go to church), who I trade with, who I marry, what I smoke, Where I work ( or not work), where I bank, what I eat, how much I eat, and how hard I work, you should go to the wilderness.

Oil Shock March 17, 2009 at 7:02 pm

BTW, again, you conveniently avoided answering a direct question.

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