Keynes vs. Hayek

If I tell you that I have two men standing in front of me. Both are 250lbs. Do you have any means of telling me their level of fitness or health? Is it 250lbs of fat or muscle? Who knows?

Similarly, is “aggregate demand” productivity-enhancing capital and sustainable consumer activity? Or is it a boom in nonsense driven by cheap credit and debt?

Aggregates mask virtually all of the actual resource allocation and individual choice at the heart of economic activity. Are they worthless? No. Are they enough to do what so many macroeconomists attempt to do with them? Not in my opinion. Not by a long shot.

As for the interpretations of Keynes. Well, indeed there are many. The joke is that 10 keynesians in a room will arrive at 11 or 12 interpretations of the so-called “general” theory. I am little more than a self-taught geek, so take my opinions in that light.

But I think even a self-taught geek can spot nonsense and, as it seems you agree, the notion of interest rates playing no role in economic (and inter-temporal) coordination of consumption and investment is just plain ludicrous. The notion that people can have an “infinite” demand for money is equally so.

From what I can tell, Keynesian economics takes some real short-term (or short run) phenomenon like people getting freaked out and “hoarding” their cash, it simply hand waves away the reasons why these short-run events occur, and then inserts government spending as a solution based on a notion of government as being both fast, smart and exogenous. Sprinkle in the “multiplier” which magically creates perpetual motion, and you’ve got a very odd framework.

In reality, government is of the people, which means that government bureaucrats suffer from the same uncertainty and “animal spirits” as everyone else. So do the recipients of government spending. Worse, though, is the obviously special-interest driven nature of government spending and resource allocation. It is inherent and yet it is ignored by keynesians.

For some reason, all of the human foibles present in “C” and “I” are magically erased when discussing “G”. I see no evidence to support that.

As Don has blogged repeatedly, how can it hold true that Paul Krugman is stupendously critical of politicians and their process, yet simultaneously believe that these same people should run a much larger portion of our lives?

Where’s the evidence?

Hand waving is all you need when your dealing with the "faithful."

"In reality, government is of the people, which means that government bureaucrats suffer from the same uncertainty and “animal spirits” as everyone else. So do the recipients of government spending. Worse, though, is the obviously special-interest driven nature of government spending and resource allocation. It is inherent and yet it is ignored by keynesians.

For some reason, all of the human foibles present in “C” and “I” are magically erased when discussing “G”. I see no evidence to support that.

As Don has blogged repeatedly, how can it hold true that Paul Krugman is stupendously critical of politicians and their process, yet simultaneously believe that these same people should run a much larger portion of our lives?

Where’s the evidence?"


The answer is in the contradictory nature of the first paragraph. IS it a governement of the people? No... libertarians fear that. They don't trust other people. But as you sid in the second half it IS a government of special interst. And those special interest ARE those with incredible amounts of wealth and power that run the government. The same thing will happen over and over and over and over and over when ever we see policy tilt too libertarian. And apparently you guys will continue to defend a system and those who will abuse you and the system over and over and over and over and over and over because you don't trust people... you hate people. It all peoples and governments fault. All true but you just can't get it through your head that the people you hate and the government you hate are your own Frankensteins. " IT's ALIIIIVE!!!

RE: "The answer is in the contradictory nature of the first paragraph. IS it a governement of the people? No... libertarians fear that. They don't trust other people."

I think you've hit on a very important point, and Marcus and johnpapola aren't exactly being forthright in their treatment of this statement. The perenial libertarian complaint is precisely what you've highlighted - that you can't trust other people with a social or community-encompassing task or agenda. Some libertarians take this to greater extremes than others. But there is a significant anti-popular, anti-democratic strain of thought in libertarianism and Austrian economics (think Hans Herman-Hoppe) that severely distrusts other people or the prospect of any deliberate collective action (as opposed to emergent/incidental collective action emerging from markets - which both libertarians and non-libertarians respect and acknowledge).

It doesn't characterize all libertarians, but it does characterize a great deal of libertarians.

Now - I'd disagree with you and agree with Marcus and johnpapola insofar as I think that they're NOT defending the current system. They are opposed to the current system, they just propose a truly radical replacement. And that replacement emerges from a rationally justified agenda. This is where libertarianism and Austrian economics becomes truly foreign to most of the rest of the Anglo-American experience (despite their claim to be consistent with early American political thought). Americans and the British have a fairly constant empirical heritage. We don't dream up massive, radical, projects or ideas that will move human progress forward. What we do is incrementally change things, experiment, hedge, and figure out what works. The rationalist tendancy to formulate mega-agendas to be imposed on society is much more of a Continental way of doing things. And it is this rationalist impulse that unites Marxism, objectivism, libertarianism, Austrian economics, socialism, syndicalism, fascism, etc. All of these groups - despite the fact that they often have starkly opposing programs - start from simple axioms and build a towering theoretical edifice on top of these axioms. And then they argue that society should be radically changed to match that theoretical edifice. As I've commented here over the last several months, what is truly amazing to me is that these guys SEEM to embrace the idea of self-organization and emergence. And I suppose in some ways they do. But I never thought of that as a "libertarian" idea before. I was first introduced to self-organizing economies by reading Paul Krugman's short book on the subject. Anyway, the Austrian agenda isn't "self-organizing" at all. It's a radical policy proposition based not on evidence or experience (they explicitly eschew empiricism in their epistemological works), but on a "rationally" derived agenda built on whatever axiomatic first principles they deem to be the best. It's a dangerous, dangerous way to think about and approach society - and it's time that we stop letting them perpetuate this myth that they're the liberty-oriented ones, that they're the individual-friendly ones, or that they're the ones standing up to radical alteration of an emergent social organization.

Daniel, this is a very interesting, though somewhat straw-stuffed post.

For starters, I am fully aware of the limits and indeed dangers in radical institutional transformation. There is value in the embedded knowledge of history and existing institutions. That’s the value of “conservatism”. But conservatism, or “incrementalism” if you will, is of far less value in assessing the nuances or the ethics of a policy or institution. For that you do need some theory and ethical framework that is, I suppose, a priori. I do not find apriorism to be sufficient unto itself, but rather see it as a tool to help understand where to draw the line.

You see, I think principles are important. The non-aggression principle, though stylized and easily subjected to challenging cases, is a very powerful ethical framework. Microeconomics is a powerful analytic framework for understanding the likely real outcomes and incentives of a policy (since the stated goals by politicians are 100% worthless).

Do I want a radical change? Yes. I want as pure a laissez faire economy and violence-free voluntary society as possible. That's how I approach things, rather than seeing little technocratic policy tweaks as satisfying ends unto themselves.

I don't know much about "rationally" driven agendas. I take on things in an open, holistic approach that is ultimately founded in a sense of peace. It's a mix of theory, empirical consideration, history and the best guess. I like falsification as a tool to debunk nonsense. I distrust analysis that relies on the fictional interactions of aggregates. I distrust people whose actions don't line up with their words, or whose words vary substantially based on their audience.

So that's my experience of libertarianism. It tells me that an economic doctrine which approves of destruction and war as a "stimulus" is BOTH theoretically ridiculous AND horrifyingly immoral.

As for democracy, I believe that it's quite clear and hardly radical to say that there are real limits to the optimality of winner-take-all political democracy. When a nation's net tax-consumers approaches a voting majority, democracy gives way to mob theft. It becomes "voting yourself an income". The Founders were worried about this problem for a reason. Does that mean Democracy "sucks" or is a "God That Failed"? No. It seems to mean that democracy is a tool that needs to be bound. How that's bound, either by a constitution or institutional competition through separation of powers is a very real challenge.

This post is now far too long. All I can say is that my experience of libertarians is that they are often the most thoughtful and nuanced people. They don't play the sham team-sports game of partisan political discourse. They may be radicals, but many of their so-called "radical" ideas, like drug legalization, are just the right thing to do on many many fronts.

There's nothing wrong with radicalism or radical thinking. The question is, what do you DO? What actions do you take? How do you live your life? A great insight in the Austrian school is the focus on human action as the primary source (and perhaps only reliable source) of individual preferences and values. What people says isn't worthless. It's just worth far less than what they do.

"Now - I'd disagree with you and agree with Marcus and johnpapola insofar as I think that they're NOT defending the current system. They are opposed to the current system, they just propose a truly radical replacement."

Right. Because there's nothing radical about nationalizing 20% of the economy. No, nothing radical about that at all.

"What we do is incrementally change things, experiment, hedge, and figure out what works."

Nationalizing 20% of the economy is not 'incrementally changing things'.

Now, you might argue that the current bill doesn't actually nationalize 20% of the economy. However arguable that might be, our arguments are to push it in the other direction.

The rest of your post isn't even really worth responding to, I'd have expected better from the person accusing other of not being fair. If we we're on here arguing for armed rebellion then maybe you'd have a point.

Muirgeo is currently floating on a cloud feeling the power of having his party in control of the government. In such a delusional state it is easy to marginalize your dissenters in your own mind. In fact, it's probably an important part of rationalizing to yourself the taking of power over them.

If muirgeo thinks collectivism is so grand he is perfectly free to join a commune. But we don't see him doing that, do we? Of course not. That's not as emotionally satisifying to him.

Re: "Right. Because there's nothing radical about nationalizing 20% of the economy. No, nothing radical about that at all."

No, I'd agree - nationalizing 20% of the economy would be extremely radical and ill-advised. I've always maintained that.

Don't even try to pretend the libertarian position boils down to opposing the health care bill. If you achieved everything in your vision and I achieved everything in my vision, your change would be considerably more radical than mine.

RE: "The rest of your post isn't even really worth responding to, I'd have expected better from the person accusing other of not being fair. If we we're on here arguing for armed rebellion then maybe you'd have a point."

That's a real shame - I thought the rest of my post really got to the heart of my concerns about the positions shared on here. These grand mega-projects for human improvement built up on tenuous foundations through a strict dedication to rationalism - mega-projects like libertarianism - that demand radical change not because there is evidence to justify it, but because someone came up with a logically consistent system that must be adhered to faithfully - is a very dangerous way of approaching society.

"Don't even try to pretend the libertarian position boils down to opposing the health care bill.

Nowhere in my post did I at all suggest that all of libertarianism is based opposing the health care bill. I brought it up as an example.

If you achieved everything in your vision and I achieved everything in my vision, your change would be considerably more radical than mine."

So? Is there any one who participates on this board who isn't using the tools and the means of democracy to push in that direction?

Again, if the people on this board were arguing for armed rebellion then maybe you'd have a point.

Most of the armed rebellions we've seen through out the world in past several decades have come from...wait for it...wait for it...LEFT WINGERS!

And in every single case where they were victorious we have seen oppressive, militant control of the people.

"I thought the rest of my post really got to the heart of my concerns about the positions shared on here."

The rest of your post is a strawman.

"Right. Because there's nothing radical about nationalizing 20% of the economy. No, nothing radical about that at all."

See... you have to lie about things to make a point. NO ONE is proposing a national health care SYSTEM. Some ARE recommending a Single Payor but it's not even a political possibility.

But the private side is so insecure they don't want to compete with a public health insurance plan. And there is no good argument against it.

It's like the government organizing CPB/NPR for pennies while most member stations are privately funded. It gives people a great option but doesn't limit private media.

"See... you have to lie about things to make a point. NO ONE is proposing a national health care SYSTEM. Some ARE recommending a Single Payor but it's not even a political possibility."

See... you have to ignore the next paragraph I wrote because, apparently, it just wasn't convenient to what you want to believe. But I expect that from you.

Still, it most certainly is NOT true that there is NO ONE who wants to nationalize the entire health care system. There ARE in fact LOTS of left wingers who DO. I know several personally, right here in my home town. Which isn't exactly a left wing mecca (though sometimes I wonder!).

Besides, single payer is effectively the same thing.

"The perenial libertarian complaint is precisely what you've highlighted - that you can't trust other people with a social or community-encompassing task or agenda."


They think all Americans or citizens of the welfare state are drains on the system when in fact most people ARE working and contributing. IMO they are often contributing disproportionately more then their wages and many of their managers and CEO's.

They act like Medicare and Social Security recipients are drains on the system even though they contributed their fair share to it.

They neglect the good things their taxes do for them and they over emphasize how much the poor drain the system neglecting welfare for the rich and massive corporations. They neglect how laissez faire system favor monopolies against small business and how those monopolies rule the system and take out far more then they put in.

They have no answers but lots of blame to cast about on everyone but themselves. Their ideology is pure and has no adverse outcomes while honest people wanting to build communities are seen as socialist and communist holding guns to their big heads and stealing their money. Everyone steals tax money from them and in their mind no body else pays taxes and they receive no benefit from the taxes that are stolen from them.

I'm sorry but it's the attitude of a whiney 3 year old child.

Oh no muirgeo - society is precarious balanced on the handful of Libertarian businesses that don't take any corporate welfare. There's nothing from these business owners from 'shrugging' and leaving society to try to survive without them (but they can't).

The perenial libertarian complaint is precisely what you've highlighted - that you can't trust other people with a social or community-encompassing task or agenda.

You don't get it any better than Yasafi does. The perennial complaint of libertarians is that most of what you define as community-encompassing, I define as, none of your f***ing business.

Yeah, it is currently a Democratic system so it can be other peoples' business. Besides what you think you'd get a chance own any land if America had have been Libertarian? More likely you'd have rent a plot from a landlord and following their rules, paying them rent and having no say in how the land is run.

Yeah but guys like Brotio assume they'd be King, Lord or Vassal and not a serf. They simply haven't thought through the realities of what they want. They are not that forward thinking. All they know is they want to not have to pay taxes but they still want all the protections that come with living in this country.

Yes when you don't get your way democratically then it's "none of our f***ing business". As if everyone should bow to your desires... the desires of the minority who for some unknown silly reason want to bring us back to 1850 and accuse us of tyranny if we politely decline to relive your stupid history.

Likewise the anarchist will make your same lame reply to what of government YOU do approve of. Sorry buddy but YOU don't determine where the line is drawn. It IS a democracy, it has been and hopefully it will become a stronger democracy truly represent the will of the people understanding there will always be piss ant sorry ass cry-babies or will crap their drawers when the vote doesn't come out their way. Somalia is waiting for you pal. No ones forcing you to stay here.

How is my health care community-encompassing? I can't think of any instance that is more personal than my relationship with my medical providers. Yet you, and your progressives are determined to tell me who I can see, what they'll be paid for seeing me, and what treatments they'll be allowed to provide to me.

Screw you. It's none of your business.

You can have the medical delivery system you desire right now. You're so convinced that your idea for the delivery of medical care is best? Put your money where your mouth is. Start your own non-profit insurance program. $5-per-month, per-person. No one can be excluded. No pre-existing condition can disqualify. I'm sure people will be lining up for your program. You should have 30 or 40 million people in your program within a month. What's stopping you? Go do it! Show us that it'll work.

So you purchase your own health insurance? Or is it a government plan or a government subsidized plan? Hmm?

Start your own non-profit insurance program. $5-per-month, per-person. No one can be excluded. No pre-existing condition can disqualify. - from my post above

Why do you need government? If your plan is so wonderful, people will flock to it.

You didn't answer thee question.

I'll answer it for myself. I do benefit from government subsidized employer provider health care. Would YOU like to answer the question? So Bro do you pay out of pocket for health care or have a subsidized plan. Please don't tell me you're a retiree on Medicare.

To answer your question... you need the government to provide competition. If private insurance is so good people will choose it over the public plan. No one is being (would be) forced into the public plan and people pay put of pocket for the plan.

Oh, you meant to ask, "So do you purchase your own health insurance?" Life would be so much easier if you'd learn to write in English.

The correct answer to your question is, "none of you f***ing business". But it's Christmas, so I'll go ahead and tell you that I pay for my own insurance.

Now, tell me why you can't run a successful non-profit insurance company, charging $5-per-month, no exclusions for pre-existing conditions? Why, if you got the 35million uninsured that you Leftards claim are out there, that would mean you're bringing in $175million every month! Wouldn't that be plenty of competition to the for-profit health insurors?

And tell me why my personal relationship with my health providers is community-encompassing?

"And tell me why my personal relationship with my health providers is community-encompassing?"


Because your health care providers are conscripted to take whatever the local health insurance monopolies offer. Your providers have very little freedom. Hell if its like when I was in private practice they probably loose employees who go to work as health insurance workers rather then health care workers because the insurance companies pay and benefits are better.


So regarding your personal unsubsidized health plan... Can they rescind your policy? Can they drop you if you develop a chronic condition? Do you have a yearly maximum they will pay? Do you know what it is? How much have your out of pocket cost gone up the last 10 years? And you're OK with more of the same.

I'm guessing you have little idea how vulnerable you are if you truly come down with a serious illness.

Way to duck this question:

Now, tell me why you can't run a successful non-profit insurance company, charging $5-per-month, no exclusions for pre-existing conditions? Why, if you got the 35million uninsured that you Leftards claim are out there, that would mean you're bringing in $175million every month! Wouldn't that be plenty of competition to the for-profit health insurors?

Somalia is waiting for you pal. No ones forcing you to stay here.

OK, President Nixon.

My friend, you are trafficking in nothing but unsupportable assertions, generalizations and personal attacks. I’m not a fan of that kind of “logic”.

Libertarians trust people far more than statists. We trust them enough to allow them to make choices for themselves. Statists look at people as lacking the information and the sense to make choices that are good for them. Worse, they believe to know what “good” means in some fictional objective way.

I don’t know what libertarian “system” I’ve been defending. I don’t see much of one around us to defend. But I suppose if you buy into the utterly, demonstrably false notion that the past 30 years have been an era of unbridled laissez faire… well…

I trust people enough to believe that they don’t need guns shoved in their face to pick their lightbulbs or their health insurance or their school. I believe in peace. Anything peaceful is fine by me.

But keep up your search for the unicorns and angels that will take on our government and not be from and captured by special interests. So far, I see no evidence to support that effort.

"I don’t know what libertarian “system” I’ve been defending. I don’t see much of one around us to defend." johnpapola


And that precisely is what makes me wonder on what basis you think it would be so good a form of economy/ government.

You're like the person that complains about everything, blames every bad thing on the government and says that if the government would just get out of the way things would be much better knowing full well you have no evidence of such. For every era has seen burdomsome government regulation. But some how the success of our society is to be credited to libertarian principles , which you say have never existed, and all the failures are a result of government malfescence. That's a shell of a position to take.

When you start claiming government regulation is to blame for the crash of 1929 and not the unregulated laissez faire economy then you have truly jumped the shark.

As we can not compare a libertarian economy to anything else since it does not exist the best we can do is compare degrees of economic "liberty". And the evidence is clear that when we tilt laissez faire we get ineffecient boom and bust cycles which you prefer to explain away
on tiny banks NOT too big to fail, government bonds and bimetal money sysems as if you know the perfect answer to avoid all these traps. Interesting how none of those things lead to a massive crash with all of the post FDR regulations. And interesting how easy such facts are lost on you.
We are a success not because of libertarianism but because a government by the people tends to create a more equitable society which coincidentally happens to be a more effecient and liberty promoting society.

Muirgeo, how do you explain the lack of banking panics, failures or massive deflation in Canada at the same time that the US was experiencing these things? They also had a fairly laissez faire economic policy. Are you claiming to be a more studied scholar of monetary history than George Selgin? You seem to like blasting libertarians and making assertions. That’s fine. I’m not seeing much evidence or reference to any scholarship.

I can't explain it because I am not familiar enough with the details. What I do know is that TODAY Canada's more well regulated banks did far better then our with less regulation.

Perhaps you should look into our stable laissez faire neighbor to the north before you make claims like "When you start claiming government regulation is to blame for the crash of 1929 and not the unregulated laissez faire economy then you have truly jumped the shark.”

And while Canada’s current banking system was less impacted, Europe’s highly-regulated banks got themselves into just as much trouble and even more leverage. So this “free markets are to blame” doesn’t pass the falsification test as a theory.

I’m not advocating anarchy. But I don’t have much tolerance for broad attacks on freedom that are so easily falsified.

"We trust them enough to allow them to make choices for themselves."

Their choice is first and foremost democracy... government of, by and for the people.
The choice of the overwehlming majority of Americans IS for a Public Choice health care option, for Social Security and Medicare. But people like you scream oppression by the majority. YOU want to take away their right and desire to act and plan collectively. Trusting individuals also means trusting their desire and decision to act democratically.

Yeah. So, 51% (or maybe 60%) of the people get to ram their preferences down the throats of 40 to 50% of the rest of us at gunpoint and you call that a “fair” system for allocating complex scarce resources?

Sorry. I call that looting. There’s a reason the founders were very worried about unbridled democracy and tied it up tight with a constitution built on negative liberty.

The voluntary market of private people is more fair. My desire to use a mac doesn’t prevent you from using a PC. Or vice versa. There is no (or far far less) winner-take-all majoritarian tyranny in the voluntary society. Plus, having men with guns pushing people around isn’t so moral. It’s just mobsterism.

" No... libertarians fear that. They don't trust other people."

That is exactly backwards. It is YOU who doesn't trust people. That's why you can't let there be a free market. You don't trust people. You'd rather put the running of the market in the hands of 'experts'.

I've said it before and I'll say it again, to be a progressive is to have a very poor opinion of people. Of OTHER people actually. The progressive always thinks very highly of their self.

Marcus people decidely don't want a free market. They want a fairly regulated market. They understand the dangers of laissez faire economics and the need for it to be overlooked by a republican form oof givernment ( Republic = res republic = commonwealth.. the public good).

That's why any fool who attmepted to run for office on a basis of crashing our governement institutions to the ground will never see the light of day. No one wants a libertarian government and that's why none exists... except for Somalia.

To be a Progressive is to be an elitist who believes that a system must be created by which people are treated like bovines.

RE: "If I tell you that I have two men standing in front of me. Both are 250lbs. Do you have any means of telling me their level of fitness or health? Is it 250lbs of fat or muscle? Who knows?"

Well if you really cared about the answer to that question I would run some empirical tests on them (with my eyes closed, of course - to preserve the sense of mystery), and with rigorous enough tests of course I could tell you roughly how lean and mean that collective 250 points is. And guess what - macroeconomists do empirical work all the time for precisely this reason. People didn't just dream up the 1.57 multiplier that gets tossed around - that was estimated empirically.

Besides, that sort of question isn't even how aggregates are used in macro. The question is "given a change in the size of this aggregate, how will it impact growth, or the oscillation of the economy (if you take an accelerator-model sort of approach)". Well you can do that with two 250 lb. people. If you ask the right questions, such as "what will happen when these two 250 lb. people stand on the see-saw", then you will have no trouble getting the answer.

I completely fail to see the point of your example. Yes, I could tell you if they're healthy or not - as I explained above. More importantly (and more akin to what macroeconomics does) I can use simply physics to tell you how they would interact with other objects, and how other objects would respond to their mass.

So, again, I don't see your point about aggregates.

And I certainly am losing you on the rest of your post. I'm not sure why you think Keynes thinks the interest rate doesn't coordinate production. I'm not sure why you think Keynes thinks that the demand for money is infinite. I'm not even sure what kind of theory you're talking about at this point.

RE: "In reality, government is of the people, which means that government bureaucrats suffer from the same uncertainty and “animal spirits” as everyone else. So do the recipients of government spending. Worse, though, is the obviously special-interest driven nature of government spending and resource allocation. It is inherent and yet it is ignored by keynesians."

I laughed when I read the last sentence of this paragraph... once I got to this paragraph I thought "finally - he's writing something I can agree with". Then I got to the last sentence and learned that apparently I completely ignore these things.

Re: "As Don has blogged repeatedly, how can it hold true that Paul Krugman is stupendously critical of politicians and their process, yet simultaneously believe that these same people should run a much larger portion of our lives?"

This may come as a surprise to you, but Don can tend towards the melodramatic when Krugman comes up. He's not alone - Krugman tends towards the melodramatic when Bush comes up... or a host of other people, for that matter.

"And guess what - macroeconomists do empirical work all the time ... People didn't just dream up the 1.57 multiplier that gets tossed around - that was estimated empirically."

That's funny.

Daniel,

Pushing around aggregates (like aggregate demand) and comparing them to other aggregates (like GDP growth) seems to me to offer very little in the way of causal information or mechanics of causation.

If you're going to dig into the actual microeconomic incentives that compose these aggregates, that's great. That's where the value is. But the notion that these aggregates offer causal information unto themselves is something I don't find convincing.

So if you're point is "we don't just look at the aggregates, we look at the micro underneath it too". That's great. But it seems that drawing causal conclusions for comparing aggregates is pretty common in the public discourse from macroeconomists. If they're stylizing their micro-founded papers, it doesn't translate.

When keynesians like Krugman or DeLong say “we need to spend X… and it frankly doesn’t matter on what it is spent”, that’s not about empirical work. That’s just scientism and, frankly, nonsense. Digging ditches and filling them back in is not the road to economic stability or growth. It's waste. It's impoverishment of the society to the benefit of the recipient. I wish it were a misrepresentation to go back to that classic ditch-digging line, but watch the Roberts/Stiglitz testimony to see that ditch-digging as stimulus is alive and well. The micro matters. Hit me with the "fallacy of composition" all you want. I don't buy the paradox of thrift. I don't see how wasting resources is ever anything other than waste.

The broken window fallacy is alive and well.

"How Disasters Help" (shockingly horrible piece)
http://www.boston.com/bostonglobe/ideas/article...


Krugman's 9/11 as stimulus:
http://www.nytimes.com/2001/09/14/opinion/recko...

"These aftershocks need not be major. Ghastly as it may seem to say this, the terror attack -- like the original day of infamy, which brought an end to the Great Depression -- could even do some economic good."

Krugman's Iraq war as stimulus:
http://krugman.blogs.nytimes.com/2008/02/19/bus...

"Hate to say this, but he’s right when he says
I think actually the spending in the war might help with jobs…because we’re buying equipment, and people are working. I think this economy is down because we built too many houses and the economy’s adjusting.
In fact, I’d say that the sources of the economy’s expansion from 2003 to 2007 were, in order, the housing bubble, the war, and — very much in third place — tax cuts."

“Ignored by keynesians” is harsh. Ignored or disregarded by some very vocal keynesians when they speak and write publicly is more accurate.

There is no way to do melodrama with Krugman. His NY Times stuff is so nutty, it defies satire. As you said, Krugman has his own melodrama about Bush and others… unless they're talking about murderous war as "stimulus". Then we suddenly see horrifying agreement.

OK, well so far you've just said several times you don't find it convincing, and you provided an analogy that does nothing to refute anything. So if that's what you choose to think, by all means keep it up. I'm still not even sure what your justification is.

How are those examples of the Broken Window Fallacy? The Broken Window Fallacy is about the total stock of wealth. Bastiat never denied that the production of wealth would increase.

Re: "So if you're point is "we don't just look at the aggregates, we look at the micro underneath it too". That's great. But it seems that drawing causal conclusions for comparing aggregates is pretty common in the public discourse from macroeconomists."

Well, I did say that we focus on the microfoundations, but you don't really need to to do useful macro.

"OK, well so far you've just said several times you don't find it convincing, and you provided an analogy that does nothing to refute anything. So if that's what you choose to think, by all means keep it up. I'm still not even sure what your justification is."

You know, I do mostly enjoy your posts. I appreciate the way you mostly keep your cool in this forum. Yet, sometimes I can't tell if you're just being intentionally dense.

I think John has been quite clear and yet you have done nothing but beat around the bush and haven't actually addressed is concern at all.


"How are those examples of the Broken Window Fallacy? The Broken Window Fallacy is about the total stock of wealth. Bastiat never denied that the production of wealth would increase."

Umm, because none of them ever discuss the opportunity costs?

This actually brings us back to the gpd issue. If some little kid started running around here breaking windows which everyone then had to replace, that most certainly would show up positively in gpd. And then we'd have the Keynesian's telling us how the kid has actually caused an increase in production.

But that would be ignoring the opportunity costs of the money used to purchase new windows. That's the whole point of the broken window fallacy.

Take the 1964 Alaskan earthquake as an example in the first link John provides. They talk about how it was a boon to Alaska because of all the money that flowed in afterwards.

OK, perhaps so. But what was the opportunity costs of all that money? Never mentioned.

RE: "I think John has been quite clear and yet you have done nothing but beat around the bush and haven't actually addressed is concern at all."

I want to make clear I've really enjoyed talking with john - he's one of the ones on here you actually can talk with without getting called names, and he makes good points. That doesn't mean I find everything he says convincing (and I'm sure the feeling is mutual!). But I have to disagree with you on this - I've addressed his analogies and his questions head on - I haven't beat around any bush. All that I see left for why he doesn't like macro aggregates is assertion and assumption. That's fine - he can continue to think that. I'm just left scratching my head about why he thinks he's provided a thorough argument for the case he's making. I can think that and still respect the guy.

RE: "Umm, because none of them ever discuss the opportunity costs?"

It's not a matter of opportunity costs it's a matter of sunk costs. The damage is done. In the aftermath of the damage, it's reasonable to expect wealth production to increase. But the damage is a sunk cost. Nobody ignores opportunity costs. If the opportunity cost of repairing the window is high enough, it won't be repaired. Opportunity costs don't operate any differently just because disaster struck. There's not much to comment on - they operate the same way. What's changed is the demand for window repair services, and the sunk cost. The new demand is going to increase wealth production. The sunk cost is going to lower total wealth. If Krugman wrote that we should fly planes into buildings more often as a policy, THAT would be a broken window fallacy. But simply to acknowledge the impact that destruction can have on GDP isn't the broken window fallacy.

...he's one of the ones on here you actually can talk with without getting called names...

Very few people here call you names. As I have stated before, this is one of the most civil blogs one can find on the internets. More civil in fact than any conservative, progressive, liberal, etc. blog I have ever eperienced. That's largely because libertarians are as a rule are fairly tolerant people who are non-partisan.

But I have to disagree with you on this - I've addressed his analogies and his questions head on - I haven't beat around any bush.

From what I can tell you've denied their validity without explaining your denial. But again, this beside the point; the end of Bastiat's thought is not "broken windows fallacy" and the "broken windows fallacy" is directly allied with other arguments that are difficult (indeed, impossible IMHO) to extract it from.

Look at your own remarks just a few below this:
"To be a Progressive is to be an elitist who believes that a system must be created by which people are treated like bovines."

Now I personally don't put myself in the "progressive" camp - but many on here put me there. Are you saying that calling me "an elitist who believes that a system must be created by which people are treated like bovines" is good, honest, tolerant, non-partisan libertarian commenting? You're actually another one on here I've usually enjoyed talking with. But again, you're not exactly what I would consider a prudent judge of fair or accurate labeling.

Well, that is not a comment made about you, and there are distinct and important differences between "Progressives" and "liberals." And yes, it is good, honest, tolerant and non-partisan position, IMHO.

RE: "And yes, it is good, honest, tolerant and non-partisan position, IMHO."

lol - well there you have it. That's my point. And if you can so freely accuse people of being elitists that treat their fellow human beings like cattle, then I don't really expect you to understand or recognize some of the ad hominem attacks that go on here.

Well, as I stated, it is a situation relative to other blogs. The level of acrimony is at such a low level here in comparison to what I have experienced that I see little to complain about.

RE: "Very few people here call you names. As I have stated before, this is one of the most civil blogs one can find on the internets."

It is quite civil usually. What does go on here is often more petty than uncivil. But give me a break, mommsen1625 - if I recall you're one of the ones that thinks its fine to call someone an authoritarian or a socialist or a fascist if they're in the classical liberal tradition with you but don't adhere to libertarianism. You're not exactly what I would consider a prudent judge of fair or accurate labeling.

RE: "That's largely because libertarians are as a rule are fairly tolerant people who are non-partisan."

HA! Look - many (I'd even go as far as saying "most") are. But it's hardly a trait that I think of as being uniquely exhibited by libertarians.

I think it is a bit unique to libertarians because libertarians are almost entirely shut out of the political process.

Interesting choice to position libertarians as the object in that sentence.

Are libertarians shut out or are they a minority whose arguments come across to the average person as eccentric and unconvincing? Who exactly is shutting you out, Mommsen1625? OR - just as a possibility - are they shut out precisely because they are felt to be intolerant and excessively factitious?

I don't know - a vague, less precise feeling of libertarianism is making pretty substantial political headway right now. But then again, I know that vague, less precise libertarianism isn't entirely satisfying to all libertarians.

BTW, the fact that this broad notion of libertarianism is so rarely expressed in policy - especially at the federal level - is a very good example of government failure.

There is a broad libertarian sentiment amongst a large segment of the population; however, as the political process is a legally enforced duopoly, that sentiment rarely rises to the surface. As an example of this legal enforcement, ballot access laws alone lead to all sorts of distortions. The only reason I vote LP is to circumvent these ballot access laws.

"But I have to disagree with you on this - I've addressed his analogies and his questions head on - I haven't beat around any bush."

And yet you have. I'm working on a post in response to the 'Is that a serious question?' Yes, it was, to pin you down. But I'll post my reply there.

But right now I have to get to work.


"In the aftermath of the damage, it's reasonable to expect wealth production to increase. But the damage is a sunk cost. Nobody ignores opportunity costs. If the opportunity cost of repairing the window is high enough, it won't be repaired."

OK, if that's what they're saying, I don't disagree. It's not what I got out of the articles but maybe the misreading is mine.

Let us remember who the actors were in Bastiat's work; the glazier is the special interest and the little boy is the government.

As for the "total stock of wealth" bit, well, if you had actually read the body of Bastiat's work you would note that Bastiat attacks the notion of government spending and interference as something which inherently hides trade-offs and limits future production possibilities. These are notions which are allied with the "broken windows fallacy." One cannot simply read the fallacy in the absence of Bastiat's other thoughts and arguments.

"One cannot simply read the fallacy in the absence of Bastiat's other thoughts and arguments."

You mean I can't just read the Wiki version and get all the relevant information? SHOCKING! Damn that wiki!

Two points:

1) One can melodramatically call attention to another's illogic. Krugman busting a blood vessel over Bush is in no way analogous to Boudreaux questioning Krugman's wishful thinking about bureaucracy.

2) I think you missed the point of John's example, which was to guess the health of the two men given only their weight, i.e. empiricism when applied to a dynamic multi-multi-multi variable system is limited in its predictive scope.

What is the point of guessing their health given only their combined weight? How is that hypothetical relevant at all?

"What is the point of guessing their health given only their combined weight?"

It wasn't combined weight.

But I realize now that John's analogy isn't quite right.

What is the point of guessing the health of the economy given only GPD? After all, that truly is a combined weight.

Ah I see - yes, an average of 125 pounds a piece is a little disconcerting, isn't it? I read to quickly.

Still - test it out, just like we do with the economy. And as I said - ask the questions that you can get reasonable answers to, not the ones you can't. Don't expect GDP to be a measure of total happiness or anything like that. Expect it to be a measure of gross national production.

"Still - test it out, just like we do with the economy. And as I said - ask the questions that you can get reasonable answers to, not the ones you can't. Don't expect GDP to be a measure of total happiness or anything like that. Expect it to be a measure of gross national production."

Congratulations. The fatal conceit and the socialist calculation problem succinctly put.

Central planners are unwilling, and in the opinion of Hayek and many others, unable, to put as fine a point on the question as you are, when you say "Ask questions you're able to get reasonable answers to." Reasonable to whom? The reasonableness of a hypothesis is circumscribed by the accumulation not only of data but of gradual changes in cultural and social practice.

Ummm... the socialist calculation problem refers to the central planner's effort to orchestrate the production and distribution of goods. That's an example of something that you COULDN'T reasonable do.

We can reasonably expect to gain an understanding of the operation of inflation, business cycles, etc. from working with these aggregate measures. We can't reasonably expect to plan the economy. That's what we have prices for.

Given that labor is, in the words of Professor Smith, "the first price of everything," how is stimulating consumption not an "effort to orchestra the production and distribution of goods?"

You don't think there's a difference between the conceit of thinking you can efficiently orchestrate production and thinking you can guide the entire economy on a rough trajectory (without dictating exactly how and what and for whom the economy produces)?

You probably don't have to answer that - I think I know how much of a difference you see between those two things.

danielkuehn,

...thinking you can guide the entire economy on a rough trajectory (without dictating exactly how and what and for whom the economy produces)?

Except that is not even what happens. This is the difference between hypothesis and reality.

You're right; I see little difference between "efficiently orchestrating production"--I take it you mean the production of an entire economy--and guiding that economy on a "rough trajectory." Both acts presume ends the existence of which no one, including you and Professor Krugman, can know.

What acts do human beings engage in that DON'T presume ends the existence of which no one knows???

The future is uncertain - get used to it and take risks that seem reasonable. If "ends the existence of which no one knows" were reason not to act, the economy would grind to a halt.

It is one thing for an individual to make decisions about whom to hire or fire, or what one wants for dinner each night of the upcoming week. It's quite another to multiply each of those decisions by the number of firms in existence or the population of an entire country. Please don't pretend that the efforts made by individuals in planning their weekly menus are analogous to "guiding an economy on a rough trajectory."

Rest assured, I'd never consider making that analogy.

But what is the point of measuring national production Daniel? Tell us that.

Is that even a serious question? The things we produce enrich our lives - otherwise we wouldn't produce them. Production is also income, which is important to keep track of if an individual or society wants to take on debt. Production is also closely related to the availability of jobs.

We care about national production for the same reason individuals care about what is written on their paychecks. It doesn't measure everything that we care about - but it's hardly a trivial measure either.

"The things we produce enrich our lives - otherwise we wouldn't produce them."

Irrelevant to the question asked.

"Production is also income, which is important to keep track of if an individual"

Irrelevant to the question asked.

" or society wants to take on debt"

How can a society 'want' to do anything?

"We care about national production for the same reason individuals care about what is written on their paychecks."

Who's 'we'?

Can you provide a more detailed explanation of why it's irrelevant to the question asked? The question was "what is the point of measuring GDP". How are my answers irrelevant to that question?

The question asked why we measure *national* income, not why we measure income. Production is at the micro-level, and measurements regarding it are relevant at that level. You need to give reasons why aggregation to the national level is relevant or meaningful.

That is a most excellent post.

Thanks a ton, Marcus.

Why did the economy crash after 8 years of Harding and Coolidge and Not after 12 years of FDR. You guys fall all over yourselves trying to explain this glaring contradiction to your fantasy. It fun just watching and guessing what siort of excuse you'll make to protect "precious" theory.

" We swears to serve the master of the precious. We will swear on... on... the precious! "

I would just note that during FDR's administration the "double-dip" portion of the Depression occurred. The economy did indeed "crash" during his administration. Next?

It crashed when he tried to balance the budget too soon. He reversed that coarse and it recovered and was the strongest economy in all of history over the next 50 years. IN ALL OF HISTORY! It's the economy you and I grew up on and it was FDR's with social security and many of his policies in place including a healthy tax on extreme wealth. That's gotta chap your hide. How could that have happened???
We should have had an economy like Argentina but we didn't? But you just want to explain away these inconvenient facts of history.

Anyway, again this is beside the point; please note your original claim.

My original claim was that I was right and your are wrong and it still stannds!

It crashed when he tried to balance the budget too soon.

This is a myth. There was no effort to balance the budget from 1937-1938; federal spending increased during the last of the peacetime years of the Roosevelt administration. Interestingly employment peaked during the height of the 1936 Presidential campaign and unemployment was on its way back up just as that election period ended.

He reversed that coarse...

Familiarize yourself with the English language please.

...and it recovered and was the strongest economy in all of history over the next 50 years.

So, you are suggesting that the very small stimulus that the U.S. undertook from 1937-1939 was responsible for the economic growth that occurred from 1945-1973? I would just note that 1945 (or even 1939) to 1973 is not fifty years.

"So, you are suggesting that the very small stimulus that the U.S. undertook from 1937-1939 was responsible for the economic growth that occurred from 1945-1973? I would just note that 1945 (or even 1939) to 1973 is not fifty years."


See this is the kind of fun answer I spoke of. I didn't say his stimulus was responsible for 50 years of economic expansion. Yu know he did much more from improved regulations to increased taxes on the wealthy to more social safety net programs and stabilizing the banking industry.
YOU'VE GOT NOYHIIIINNNNNG! But please continue to humor me.

YOU'VE GOT NOYHIIIINNNNNG!

Right on brother. All the billionaires are on our side. Proof is in the pudding - success of our policies is reflected in the number of billionaires who support our policies.

Mmmmmwwwwwaaahhhhh

don't forget the "respected experts" in various fields of Ivory Towers.

Yu know he did much more from improved regulations...

Actually, the regulatory policies are uniformly panned by economists and economic historians. This in large part because they encouraged cartels. See, FDR had this really stupid idea that competition is a bad idea. This was back when the fascist notions of cartelized industries were all the rage.

...to increased taxes on the wealthy...

The wealthy largely escaped these; the majority of the new tax burden fell on the non-rich of course.

...to more social safety net programs...

Which have been in crisis mode ever since and have created irrational claims on the public purse.

...and stabilizing the banking industry.

This along with the adjustements of our relationship with the gold are the only the domestic policy accomplishments of the FDR administration of any merit.

YOU'VE GOT NOYHIIIINNNNNG!

Do grow up and get out of sports fan mode.

This along with the adjustements of our relationship with the gold are the only the domestic policy accomplishments of the FDR administration of any merit.

Well, I know I'm certainly enjoying the benefits of today's stable banking system! You really think so, Mommsen? If so, I'd love to know why.

It's NOT FDR's banking system...except for the FDIC which helped stabilize the system. But no if our economy suffered it's because we overturned FDR's banking system. In fact we turned over the banking system to the bankers so they could better allocate resources and cover risk. It was basically like giving the Free Hand Baby God a loaded pistol. This result is your unfettered markets result. No one was overseeing those derivatives or CDO's. The free marketeers got exactly what they wanted. ...even Fed policy... they steered it...right off the cliff.
And your guys answer is more of the same... and you have lots of name calling to back your position. Wow who can argue against such logic and evidence.

The reason I asked Mommsen and not you is because if I wanted to start my day off with a steaming pile of mental shite written by an embicile, I would have read something by Joe Biden.

LOL!

I kicked this around for a moment: Who's the bigger maroon; Yasafi or Biden?

Unless there's an IQ test that measures down to 1/1000? The world may never know.

Yes. It's comforting to know a muirdiot is second in command, isn't it? Hm....on second thought, it is actually.

"It's NOT FDR's banking system...except for the FDIC which helped stabilize the system."

"When the FDIC was created, there was no national system of deposit insurance in the world. President Roosevelt actually opposed its creation, even threatened to veto the legislation that was to create the FDIC. He was concerned about the moral hazard that can occur when protection extended to depositors makes them less diligent in the selection and monitoring of their banks, and makes banks less careful in their lending practices." -- Remarks of Martin J. Gruenberg, Vice Chairman, Federal Deposit Insurance Corporation (FDIC)

http://www.fdic.gov/news/news/speeches/archives...

One of the few instances where I don't disagree with FDR. He also wasn't too keen on SS because it was projected to go broke in 1984. The fact that he signed that legislation anyway just goes to show how different political incentives are from what people think they are.

If memory serves, taxes were hiked in 1937 and the economy promptly plummeted.

Yes indeed they were increased on the highest earners to 65% in 1933 and up to 90% in 1945 staying that high all the way to 1960's and the booming American economy that your family immigrated into to take advantage of and to do so well.

It all puts the lie on the baloney of high taxes on the wealthy destroying the economy.
How do you guys deal with such contradictions?

Yes, you intellectual giant, YASAFI!!! You make a great point. A rising tax rate translates into astounding economic growth!

If 45% is good, 90% is better and at 100% we will maximize economic growth.

Your logic is ironclad and irrefutable. After all, you ARE the "I" in YASAFI.

No the consistency of my logic and my argument are found in the historical evidence that wide disparities in wealth and income lead to ineffecient boom and bust economies (because falling wages go along with losses in aggregragete demand) while shared propsperity leads to better economic stability and effeciency.

And yeah as far as I am concerned it is pretty irrefutable while the idea that minimalist government intervention in the economy is best has almost no historical factual base... and thus your proclivity to name call over citing support for your faith.

my logic and muirgeo is an oxymoron.

"...and thus your proclivity to name call over citing support for your faith." ME

muirgeo makes the mistake of thinking that the rate of taxation on paper is the actual rate of taxation. No one paid 90% (or 63%) of their assets or earnings into the tax system and no one ever will. The higher the tax rate the more a person will hide their earnings and assets; that of course creates significant transaction costs as people waste some of their earnings and assets trying to protect them.

methinks was the one who argued the increased tax rates caused the dip in 1937. But now your claiming I'm the one who doesn't understand tax increase effects. So maybe you and her should discuss how we had such a great economy with subsequent more substantial tax increases.

Again, I just enjoy watching you all tie yourselves in knots trying to spin a coherent historical explanation that backfills into your ideological faith... it's very creative on your part.

There were also plenty of very legal loopholes. The tax reform of the early 80's resulted in a the closing of most of the loopholes in exchange for a lower explicit tax rate. In the 1960's Milton Friedman pointed out that the average tax rate that was actually paid by high earners was more like 23%, not the posted 90%.

Not only did people waist earnings and assets trying to protect them, they also didn't spend the time in productive pursuits. Seen and unseen, I think? But, it doesn't matter how many times and how many people point this out to YASAFI. He wouldn't be YASAFI it didn't all pass through his empty head undigetsted.

In 1938-1939 a whole number of government activities that were hostile to private enterprise were curtailed - either by choice (of the Roosevelt administration) or by the courts.

Awesome muir, excellent question. My wife dropped a glass and broke it into a 100 pieces, and I picked up one of those pieces and dropped it and it didn't break. I asked my wife the same question, and the answer is obvious. It was all her fault.

FDR is a hero. He knew what needed to be done - Send all the skilled/productive men to foreign lands, replace them with unskilled kids/women, suspend all goods producing efforts, make ammunition instead of goods that make human life better, sprinkle in some price control and rationing. And a miracle happened, economy experienced the biggest growth in "GDP".

Wonderful muir. You are awesome. Love you. Many a billionaires will vouch for all our pet theories.

Of course what was really unsaid in the entire interview, and what Russ should have said (though this may have been cut), was that Keynesianism wasn't even really tried in the 1930s in the U.S. So all this talk about its role during the Great Depression - or hints at such really - should have just been squelched from the start.

Russ do you really believe the stimulus is the reason for problems with confidence in the markets. I think that's the best talking point the free marketers could come up with and you hear them say it over and over with no evidence given to support it.

You're telling me those same "market guys" who wanted trillions in TARP money and other government debt obligations are now worried about Obama's spending which is responsible for only 18% of the deficit?


That's the standard cop out if you ask me. There's not much logic to that position if you ask me.

Also if stimulus is so dangerous how do you explain away the post FDR economic boom lasting all the way to the 70's? If that's what's going to happen after this stimulus I am all for it.

Awesome muir. This reminds me of the income "disparity" chart you post from time to time. For second there I thought the financial turmoil would reverse those "disparities". Whew! But Obama came to our rescue. He has already got the trend going in the right direction again with his stimulus packages, bailouts, and regulatory schemes.

All the smart billionaires are on our side muir. We have nothing to fear but fear itself. On our way to first billion. Al Gore is back from Cop15, after pitching our carbon trading scheme to the world. I'm sure we will have our cut from future stimulus packages.

Love you, mmmwwwaaahhhh

That's the standard cop out if you ask me. There's not much logic to that position if you ask me.

Who asked you?

Some other guy. So mind your own business

Some other guy.

LOL.

Which other guy? Jimmy Carter?

I'm reminded of Jimmy asking young Amy for election advice. I'm probably not being fair to Amy.

Also if stimulus is so dangerous how do you explain away the post FDR economic boom lasting all the way to the 70's? If that's what's going to happen after this stimulus I am all for it.

Right after WWII Keynesians as nearly an entire class called for massive spending by the government because they expected a return to the Depression. That spending did not occur; spending in fact dropped dramatically. The U.S. boomed after WWII; real economic growth that had not been seen since the 1920s.

Of course, as we know, Keynesians are never, ever wrong.

Keynesianism is the last straw the Statists have after the fall of the USSR. You may as well try to explain to ALGORE that man made carbon emissions count for very little warming on Global Temps. No mater what you say, they will never, ever listen. It's dogma. The most you can do is try to keep them out of power and out of trouble.

That made no sense.

Of course it makes sense. Keynesians were all a twitter about the need for massive levels of government spending and it turned out that their prediction was wrong. Keynesian policies have consistently failed in this way.

You obviously haven't read much about Keyensianism.

As is evidenced by your commentary here, you obviously haven't read much of anything.

I've never understood this critique. Yes, of course they were wrong. But some people have this approach that if you were wrong ones your entire belief system is defunct. No - you're either wrong because there was something wrong with your assumptions or because there was something wrong with your logic - and either way you learn from it.

So let's ask - why were Keynesians wrong? Well they were wrong because they thought at that time that consumer demand would always tend to be well below full employment. Full employment was something to shoot for but not something early Keynesians thought the market ever tended to achieve. What actually happened? The removal of wartime restrictions on consumer demand lead to a surge in aggregate demand. Aggregate demand and the propensity to consume still played the exact same role in the functioning of the economy that Keynesians thought it would, it just wasn't as unstable as they expected it would be.

Unfortunately they didn't even get the message then - it took Milton Friedman and stagflation to really drive the point home to them that the economy doesn't continually sit at well below full employment. Once that lesson was learned, you got "New Keynesianism" - Krugman, Mankiw, and that crowd - that abandoned the parts of Keynesianism that initially lead people to predict a post-war depression. With Japan in the 1990s, this New Keynesianism started to focus on a major crux of the General Theory that had long been ignored - the liquidity trap. And that's a good thing, since only a little over a decade later the U.S. found itself in a liquidity trap as well.

You learn. Yes, most Keynesians were decisively wrong after WWII, but (1.) being wrong isn't a death knell for a theory - it's a reason to reevaluate, and that's exactly what they did, and (2.) the reason why they were wrong actually strengthened many parts of Keynesianism - specifically the importance of thinking carefully about the behavior of aggregate demand for investment and consumption.

You don't refute muirgeo effectively simply by observing that people who are long dead made mistakes. That's a tautology. Of course they did. Who doesn't?

"No - you're either wrong because there was something wrong with your assumptions or because there was something wrong with your logic"

Exactly, most of Keynes assumptions were wrong and the logic is flawed to.

Anyway, the best way to measure the success of an ideology - and that is what Keynesianism is, an ideology - is to look at its contributions. Its contributions have a significant number of disasters to its "credit" - this would of course its deleterious influence on, for example, development economics.

You can't blame Keynes for the disasters! Come on...you can't Blame Marx or Engels for what happened in the Soviet Union as well. We all know that their theories would work if they could only find the right people to implement them! I'm sure if we all hold hands and sing, think happy thoughts, we can make Keynesianism and Marxism work!
/snark

Yeah and you believe we can make Libertopia work too because you have so much evidence to back your faith.

Well, thank gaia that we have finally found the right guy in the Buma. He will lead us to salvation where man is no longer alienated.

Buma is nothing if he doesn't have ALGORE at his side. Biden is what's keeping him down.

With Japan in the 1990s, this New Keynesianism started to focus on a major crux of the General Theory that had long been ignored - the liquidity trap.

Which is also hogwash. After all, despise all the efforts of the government in Japan, the economy as a whole stagnated there. Why? Because a whole lot of malinvestment by the state and encouraged by the state had to be worked through the system. Similarly, all the U.S. government is doing is delaying our recovery by malinvestment on its part and by encouraging malinvestment by others.

Shhhhhh! You're not supposed to talk about the various Japanese stimulus efforts. This was a liquidity trap and stimulus would have solved it if they'd only tried!

Oh damn...maybe they need even more Stimulus! I'm thinking 100 trillion might....just might be enough but I'm not sure...might need two or three doses of that...and if that doesn't work...it's not the fault of Keynesianism...it's all the fault of the Markets!

EXACTLY. The only time stimulus doesn't work is when there's not enough of it. And really, is there ever enough?

There is never enough stimulus. We need more meth....err I mean stimulus.

You're telling me those same "market guys" who wanted trillions in TARP money and other government debt obligations are now worried about Obama's spending which is responsible for only 18% of the deficit?

I would just point out that a number of institutions were coerced into taking TARP funds.

And of course as Adam Smith stated in the "Wealth of Nations," the greatest opponents of the market are business people. You would do well to read Smith some day.

Yeah one...Wells Fargo. And now they are about last to repay it.

More than one actually, but that is beside the point. Remember what your original claim was.

You actually expect him to?

There's no evidence of anything, just interpretations that you either like or dislike.

Skidelsky described the market "punishing" millions in a downturn, but didn't make the connection that wasteful government spending could be punishing too.

The problem I have with advocates of Keynesian-style spending policies is that they always go this overwrought, emotional route. Markets punish. But ill-educated and ill-informed politicians and technocrats just waste money.

For all the apparent "calculations" necessary to spend the economy back into shape, I'm surprised a Keynes scholar such as Skidelsky would resort to such an emotional argument.

I'm not for the government wasting money but can you point to a time when IT was responsible for a massive economic downturn? Where's the evidence?

Awesome muir! Let's pretend that the hyperinflations in Argentina, zimbabwe, or weimar republic, or civil war america were all creations of private individuals and their enterprises, and let's pretend that the collapse of the Soviet union was caused by private enterprise. Love you man.

While we are at it, Let's for a second pretend that Hitler was not democratically elected.

Mmmmmwwwwaaaahhhhh..Hitler was time magazine's man of the year in 1938. Love you.

muirgeo… we’re in it my friend. And, yeah, the depression (Fed inflationary boom in 1927-29 lead to crash and made into depression by smooth hawley + Fed deflation and crippled clearinghouses by Fed leading to massive failures of otherwise solvent banks). Oh Oh… and the 1970s inflationary recession. And the 1920 depression. And the bank panics of the late 1800s (thanks to regulations on reserves being matched by government bonds and restrictions on branch banking).

"....made into depression by smooth hawley ..."


I think you just regurgitated...something you've been fed too much of. Smoot Hawley did not cause the depression. Stop listening to Glen Beck for Christ sake!

Muirgeo,

You are making an assertion that is outside the mainstream. What’s the evidence for it? Why would slamming the door on global trade NOT dramatically reduce economic activity (which is trade)? One of the things that FDR did that was good was loosening the trade restrictions imposed by SH

I am most certainly regurgitating what I’ve read, as are you. I don’t believe either of us were alive (and omnipotent) in 1929. What is reasonably clear is that the 1930 Depression was the first to be so protracted and also the first to be hit by a massive assault on global trade, unabated deflation and coordinated efforts to prop up prices and wages in the face of both.

I don’t watch cable news. I’m an NPR/PBS man myself. And I read books.

Global trade was going down as was the economy well before Smoot-Hawley.

During 1929 were only 4.2% of the United States' GNP and exports were only 5.0%. The tariff certainly didn't help but it was not the cause of the severity of the depression.

You’re focusing in on one of many causes I listed. Here they are again in my best guess order of importance (which there’s little reason to believe).

#1. Failure of the Fed to replicate what private clearinghouses had done in prior panics, leading to massive bank failures of would-be solvent firms.

#2. Deflation driven by the Fed’s real bills doctrine and magnified dramatically by the bank failures.

#4. The Hoover tax hike & Hoover-lead wage rigidity driven by his own false income & efficiency doctrine.

#5. Smooth Hawley

#6. Post 1933: FDR’s NRA and AAA and other cartelization schemes by the New Dealers and their love of bigness.

#7. The Wagner Act.

#8. FDR’s regime uncertainty regarding monetary policy, taxes, and virtually everything else. The guy was a flaky tyrant.

Good list...I'd put NRA and AA ahead of Smoot Hawley though. When they were declared unconstitutional the economy started to pick up...then came Wagner to screw it all up again.

I forgot to list a very important one:

The Fed inflation via purchases of securities that (I believe) began in 1927 as part of some effort to impact the UK Pound. This is the Austrian credit expansion.

But the bust seems like it could have been similar to the 1920/21 turn-around had the above not occurred.

I'm responding to your most recent point here because it's getting small:

1. No, Keynes did not say the government should be a spender of last resort under all conditions. He said it should be a spender of last resort in a liquidity trap which wasn't happening at all in 1920/21. Read his work on monetary policy - when there's no liquidity trap he never promoted an active role for fiscal stimulus. I know you've said you're not convinced by liquidity trap/paradox of thrift arguments - but you have to at least acknowledge that Keynes (and I) take them seriously and that he only advocated stimulus in certain circumstances.

2. The depression started in 1920. Did it extend into 22 and 23? I thought it was over much quicker than that.

3. On Harding - again, as far as I'm aware Keynes wouldn't have thought we should be using fiscal stimulus in 1920/21. I'm not sure if he would have been particularly concerned about paying off the debt or not (our debt was something like 30% of GDP, so it's not like it was an emergency or anything), but I don't see why you think he would advocate adding to it with stimulus.

4. On Krugman, he's definitely motivated by politics. That point has never been lost on me. I think you're being somewhat unfair about this article. Krugman's concern was the tax cuts, which extented much longer than one year of 3.5% deficit. Plus there was no good reason for a lot of the Bush deficits. Large deficits from unnecessary tax cuts and unnecessary wars only weakens your position if you need to respond to a major recession down the line. So I think Krugman is right to advocate the Clinton approach - if you can - if you have the freedom to - pay down the debt. It puts you in a better position to respond later. If you know a demographic tsunami is coming, don't make what are likely to be permanent tax cuts, and don't perpetuate this mantra that it's always awful to maintain or (God forbid!) raise taxes. I think those are Krugman's major points and I completely agree with him on them. But then, he DOES mix politics into those points, and he is deliberately harsh on the Bush administration. It's one thing to advise that the Bush administration be more prudent. It's another thing to call their arguable imprudence a "fiscal train wreck".

On Krugman, that article was written in March, 2003. And yet, in August 2002, Krugman wrote his much discussed piece about the Double-dip recession and advocated aggressive Fed inflation.

http://www.nytimes.com/2002/08/02/opinion/dubya...

Maybe it’s just my bias, but I find it incredibly hard to see how a coherent theoretical framework is underpinning Krugman’s “analysis”. Instead, he seems to have a set of principles that go as follows:
• Low rates are good.

• When rates hike pop a bubble, it’s the fault of the hikes, not the bubble

• When political opponents run a deficit in the face of a slow economy, it’s a fiscal train wreck

• When political friends run a deficit, even one dramatically larger, during a downturn, it “saves the world”.

• Politicians can’t be trusted to get legislation right (much less read it)

• Politicians should be empowered to control much more of our decisions than they already do.

The “liquidity trap” and “paradox of thrift” all seem to rest on a broken banking system that doesn’t translate higher savings rates into lower interest rates and increased investment and lending. As with most of what I’ve read from keynesians, this is a focus on the symptom and treating it like the cause.

Well like I said, it's not lost on me that Krugman is an outspoken partisan. I suppose I just see some good analysis in there as well. But you've got no argument from me on his political motivations.

I'm sorry. You don't get to blame the Fed for the depression when the fed was created by the demands of private bankers to the frequent panics of the pre-fed era.

The fact is poor regulation not over regulation lead to this great panic and the Great Depression. You positions makes no sense because things should have got worse under FDR and NOT lead to the strongest economy the world has ever seen.

You've got nothing.

You would be well served to review the stability of Canada’s banking system during the same period with even fewer regulations and no central bank, muirgeo. Maybe do some more reading on the actual details beyond "there were lots of panics and then the Fed was created". Maybe you have. It doesn't seem like it.

The fact is that banking in the US suffered from a host of destabilizing regulations that made it fragile and subject to panics. That other free banking systems like Canada didn't have these regulations and thus didn't suffer the panics or the massive deflation post 1929 is a useful counterfactual.

Problematic regulations include:

#1. Unit banking. Banks were restricted from opening branches and especially from having branches across state lines. The result was weak, tiny banks that were subject to regional shocks such as the seasonal ups and downs of what was a mostly agricultural economy. Bad corn or cotton harvest? Hello bank insolvency.

#2. post civil war regulations requiring banks to hold government bonds against their reserves. As the debt was paid down, this created a shortage of notes and resulted in panics.

#3. The agitations of the silver inflationists and problems resulting from a bimetal system with fixed gold-to-silver ratios also clearly played a role.

Read your Selgin before you make such bold assertions and proclamations about who's "got nothing", my friend.

Here's an accessible start:
http://www.csmonitor.com/Commentary/Opinion/200...

Interest rates were much higher in 1920/21. Why do you suppose it would have played out the same way? Is that just because of your assumptions about what is best - or do you have a reason to believe that the economy was undergoing the same processes in 1929 that it was in 1920?

I don’t have a great answer, hence my hedged “seems like it could have been”.

1920/21 was a deep downturn. The recovery was fast despite everything being done in the opposite of keynesian prescriptions. Is that an anomaly? Could be. But it’s there. The failure of the economy to fall back into depression after WWII came to an end and Truman/Eisenhower maintained relatively balanced budgets also contradicted Keynesians then and now.

When you combine the lack of evidence that Keynesian stimulus has ever really worked, which is admitted by many keynesians such as Steven Fazarri and indeed even Krugman for whom the answer is always “it wasn’t big enough” and add in the reality of how politicians execute these programs plus the counter-examples where anti-keynesian policy coincided with recovery, I find there to be plenty of reason to be skeptical.

Wait a minute, wait a minute. What exactly is your understanding of a "Keynesian perscription"? Why are you assuming Keynes would have advocated that? In 1920, inflation was high and interest rates were high - I don't see why Keynes would advocate deficit spending.

There is evidence stimulus has worked - how do you think they came up with those multiplier estimates in the first place? And Krugman does not say that we don't have evidence that it works - what he says regarding "it's not big enough" is that we do have evidence that it has helped some, but we still could have done more.

A keynesian prescription would be for the government to step in as “spender of last resort” to stabilize aggregate demand in the face of falling consumption and investment spending… would it not?

Inflation in 1920 was high, being driven by the WWI printing presses, but the actual recession/depression brought on major deflation in 1921, 22 and 23.

1920 was the peak. 1921 was the trough.

Harding cut taxes, but cut spending more and paid down debt through the downturn. I don’t know how this can be considered anything other than anti-keynesian in the extreme.

Where I am going wrong on that?

As for Krugman, again, shall we recall his horror at Bush’s 3.5% deficits as they pertained to LONG TERM SOLVENCY.

http://www.nytimes.com/2003/03/11/opinion/11KRU...

His “analysis” is party politics.

The 1987 stock market is mysterious too as it was a deeper downturn than in 1929 yet it didn't trigger a depression despite there being no changes to a laissez-faire economy.

Sure. Glenn Beck is a tool. Let's pretend for a second that Keynes didn't lose a fortune in the crash, and Fisher( father of monetarism) didn't lose a fortune, and let's pretend that Mises & Hayek didn't warn of the depression.

Mmmmmwwwwwaaaaahhhhh

You mean the authority on Depression Econ (before Krugman of course) didn't see it coming? OMG How horrible!

for Christ sake

Isn't that a religious invocation. Isn't religion the opiate of the masses?

I think he is referring to ALGORE as the Christo.

The Great Depression was caused by the policies of the Central Banks; that is position taken by the majority of the economists and economic historians these days. Smoot-Hawley (along with similar efforts by other governments to curtail free trade) didn't help things at all and did considerable damage on its own.

Numerous economic crisis in U.S. history (we don't even have to go outside of the scope of U.S. history in other words) were the direct result of government policy, starting of course with the U.S. embargo that lead to the Depression of 1807-1814. Are you really this poorly versed in U.S. history?

Uh... the Fed?

Neither the Federal Reserve System nor its component banks are owned by the United States Government.

IMO it's duties SHOULD be taken over by the Treasury (made public). It should be a public entity.

Are you under the impression the Fed was not doing exactly what Wall Street wanted it to do? These are the same "capitalist" guys you are always defending.


The Fed was more the creation of private bankers ( JP Morgan) then of politicians.

This is the stuff you guys don't seem to get. There's no way to have a laissez faire economy as people with wealth will always infiltrate and control the government unless the people of the country control the government and prevent such from happening. Your system is unworkable and inherently flawed.

I didn't know that state-mandated monopolies over MONEY was the cornerstone of a capitalist system.

There were a whole lot of assumptions about what I think and/or believe in there, when I've never had a conversation with you in my life. Interesting. Anyway, I agree with you that it would be better (not best) to have the powers of the Fed completely subsumed under the Treasury or something like that. As for unworkable system and inherently flawed... it would seem that the state is more to subject to that criticism than a truly free market. No, I'm not an anarchist (gotta nip that one in the bud) but if you want to lobby that criticism, we can start talking about forms of social organization in general.

The govt and the Fed are two peas in a pod, this is so obvious I shouldn't even have to say it. I do not identify Wall St. bankers as paragons as capitalism. Insofar as they cultivate benefits from the state, they are closer to lovers of fascism than capitalism.

Just so we end on a happy note, I agree with you that the current system is unworkable and inherently flawed. I just don't think it is honest to call our current system "capitalism". Thank you and have a good day.

Muir, you are awesome! Let's just pretend that Fed is not a creation of the U.S congress and It's chairman is notappointed by the President and confirmed by the Senate. Let's pretend that it's not in cahoots with the Treasury and that it doesn't monetize federal warfare/welfare state.

Love you man.

I think to a large degree Skidelsky has this approach precisely because he's not an economist - he's a historian. He's trying to tell a great story. He believes in Keynes the man in a way that most economists don't directly concern themselves with. You see politicians do this too - emotions have a big political payoff. I don't think the emotionalism is apparent in Keynesian economists, though. Certainly no more than it is in economists of any other persuasion.

I think you’re right daniel. Robert has a strong connection with Keynes that is easy to understand given his work. What’s less easy to understand is how he reconciles the supposed “charity” of Keynesian economic doctrine with Keynes quite disturbing views about morality, his desire to see a handful of elites run the show for millions of people he considered beneath him, and that unfortunate bit about his doctrine being particularly “apt” for a totalitarian state.

We’ve been very fair to Keynes in our work. Probably more fair than he deserves. Still, if one’s ideas are strong, they should be able to stand tall against their competition without need to hobble it. Keynes “spend us to prosperity” is hobbled enough honestly told.

Re: "Keynes quite disturbing views about morality, his desire to see a handful of elites run the show for millions of people he considered beneath him"

I'm not quite sure what you mean by this. Keynes thought there was a legitimate role for the government - is that all you mean?

RE: "and that unfortunate bit about his doctrine being particularly “apt” for a totalitarian state"

Always a frustrating line to deal with, but I think if you read the whole foreward to the German edition rather than just the part that's always excerpted, it's pretty clear. What he talks about repeatedly before that line about totalitarian states is what he considers to be the "general theory" facet of his theory - the use of macroeconomic aggregates. He talks about aggregates in economics (not the deficit spending suggestion) over and over again before he mentions the utility of his theory for a totalitarian state. His point was that microeconomic models that pressupose market competition are obviously useless in a totalitarian state. Macroeconomic models (before the advent of the search for "microfoundations" at least) could be much more generally applied. Reading the foreward you get no sense that he was talking about deficit spending. That wouldn't even make sense - why would deficit spending be any more apt for a totalitarian state? Historically, tyrants have always had a much harder time raising money through bond markets than democracies have. If anything, the deficit spending side of Keynes is more apt for the democratic state.

RE: "Keynes “spend us to prosperity” is hobbled enough honestly told."

Ugh - you're promoting that version of Keynes, huh? That's not the real Keynes - I hope you realize. At the end of the segment I heard you mention the liquidity trap - that's good. I hope you didn't promote the idea that Keynes supported large deficit spending under all circumstances. He only advocated it under certain circumstances.

Our lyrics were reviewed approvingly by Skidelsky as well as other Keynesians. We’ve made an enormous effort to be fair, which is why the Newshour was so interested in the work.

Keynes did not advocate deficits during booms. I believe Hayek recalls a conversation near the end of Keynes’ life where he reassured Hayek that he’d reign in his acolytes if they ever tried to use his approach in an inflationary period.

But it is equally true that he had a genuine disdain for saving in general, and not just changes in the rate of saving (hoarding). He had, to my knowledge and I could be wrong, no model for how savings from a prior period translate into capital investment and productivity gain that are the foundation of economic growth. The keynesian shortrun is all about the current “circular flow” of spending. Savings is a “leak” that leads to depression.

Personally, I believe that’s nonsense. Hayek’s critique, which makes sense, is that Keynes was ignoring the role of interest rates in coordinating production in consumer goods vs. capital goods. The Austrian cycle directly addresses the fact that producer/capital goods go through a larger boom/bust. The closest Keynesian theory comes to this is “animal spirits” being more volatile for investment goods.

On the role of interest rates, Keynes went out on a limb and threw out the loanable funds market (credit market) as the origin of interest rates. That is the market where supply of credit (built on savings) meets demand for credit (worth borrowers with plans). Banks compete on interest and the more supply (of savings) they have to loan against, the more they will seek new customers through lowering their interest rates. It’s lendingtree.com.

Keynes model of interest as a function of “liquidity preference” or, I believe, the demand to hold MONEY, is bizarre. People don’t hoard cash because of interest rates. This idea that rates go down because of hoarding is pretty nonsensical and Keynes contemporaries agreed. It was such a departure, that the loanable funds model is the one graph in the entirety of The General Theory, I believe.

Keynes contributions to uncertainty and probability are apparently pretty interesting. I don’t see this “innovation” regarding interest rates as anything other than trying to hand wave away a giant hole in his theory (the role of interest rates to translate increased savings into investment and shift labor and resources from current consumer goods to future-oriented capital goods).

Regarding Macroaggregates being divorced from microeconomics and that being more apt for a totalitarian regime, well, indeed. That’s a bug, not a feature. Their disconnect from actual economic decision making is why they are of marginal value. Plus, the absence of a market process that generates meaningful, informative prices results in macro aggregates that are purely fiction. This is why GDP numbers during WWII are relatively pointless to look at.

Regarding the morality, my statement above is a reference to Keynes’ disdain for middle class morality and social norms and his belief that the elites (and especially him and his cambridge friends) should (and could) run America and elsewhere. They appear to have had no regard for classical liberal values, the ethics of liberty or individual rights to self determination.

Rothbard (hardly unbiased) reviews. http://mises.org/daily/3845 By all means seek alternative points of view and point them out to me.

Again, all of that adds up to a man from the upper class who looked down on the people, the market in which they trade, and sought favor with politicians and (sadly) tyrants. That such a world view would produce a theory that centralized power, washes away individual choice and could be a useful tool in the hands of politicians is no surprise.

It’s possible that Keynes truly believed his theory and believed it was a good thing for the world. It’s also possible that he was selling a bill of goods that he knew would gain him favor in the circles in which he ran.

One thing is for sure. Keynes gave politicians a justification to pay off their buddies with make-work and bailouts under the guise of “stimulus”. Worse, he provided an argument for war and disaster as “stimulus”. Waste is waste. Destruction is destruction. The broken window fallacy is a fallacy (and a dangerous one at that). This even holds true in a period of high unemployment. Just as the poor people that were denied the ability to buy a perfectly good “clunker”.

/rant

Cheers!

RE: "Our lyrics were reviewed approvingly by Skidelsky as well as other Keynesians. We’ve made an enormous effort to be fair, which is why the Newshour was so interested in the work."

Well, as I've alluded to in other posts, I don't think Skidelsky is the decisive voice when it comes to Keynes's economics! I liked the portions that I heard - I'm not knocking the rap. And even if it presents an incomplete picture of either Keynes or Hayek, that's artistic license - you have to do what works.

I don't think I mentioned your rap in my comment - if you interpreted it that way, that's not how I intended it. As I mentioned in the "NewsHour video" post, it's great that the rap was the only place that seemed to mention the liquidity trap in the whole segment, which I thought was great!

I think this is really a myth that Keynes cared all about spending, and didn't care about saving or investment. He actually talks a lot more about investment demand than he does about spending - his concern is the tendancy of the market to, on occassion, not match savings to investment. It's the savings glut that bothers him, not savings itself. My understanding is that the whole plumbing/circular flow/mechanical analogy emerged after Keynes.

It's been about a year and a half since I last read the General Theory, so on the specific point of liquidity preference I'd have to revisit exactly how he treated it - but I largely have the same reaction as you to that. I've always felt that the IS-LM version of Keynes complicates the point and treats a single market as two separate markets. But I'd stress that that's a VERSION of Keynes - and a lot of people don't think Hicks faithfully represented liquidity preference. Whether he did or didn't - whether it's truly "Keynesian" or not - I disagree with you insofar as I think liquidity preferences definitely inform the interest rate (as do a variety of other individual preferences). I'm not sure I like how liquidity preferences have been modeled or thought about after Keynes.

I'm not sure I entirely understand your case against working with aggregates. Your point seems to be "aggregates are bad because they aggregate from micro-processes". That's a definition, john, not a refutation. Think about biology. Is it important for biologists to know organic chemistry? Of course it is - just like it's important for macroeconomists to understand microeconomics. But you don't berate Stephen Jay Gould for not doing detailed work with genes - just like you don't berate Dawkins for stopping at genes and not doing more detailed work with organic chemistry.

Just because something can be reduced to a more elementary question or process doesn't mean that it always has to be.

Anyway - obviously I have lingering disagreements with you over Keynes, and that's fine. I do want you to know, though, that I think the project you're working on with Russ was great - and I thought it sounded like a great idea from the beginning.

Thanks for the encouragement, Daniel. We’re in it to be honest and expand the discussion. As for aggregates, scroll below for my effort to answer. It didn’t post under you for some reason.

All this blather about Keynes makes me think about the scene in Annie Hall where this jerk is blathering about Marshal McLuhan and Woody Allen finally gets the real Marshal McLuhan who dresses the guy down. You don't have to be a Keynesian to wish that JMK could reappear on the scene and say something like,"I never intended deficit spending as a tool for self-serving crooks to hide behind when they pay back their political patrons"

Russ, I was hoping for more but, I suppose, a serious discussion is far beyond the time allowed. Still, I think you got the good bits across.

Now, what I really would like is a debate on Hayek between you and Kaplan. That would be much more fun.

But Hayek is just too darn hard to read!

It is up now on the PBS youtube account.

http://www.youtube.com/pbsnewshour#p/u

Russ, first of all I want to say that it's good to see you get more exposure. It seems like I'm seeing you all over the place lately, which is a good thing.

It seemed like the segment was pro-Skidelsky, although that might just be my own biases coloring my perception. I think I did honestly wince when the interviewer baldly set up that "long run" line for him, though.

In general, I thought you were a bit too nice. I would like to have seen more of a direct response to some of his claims, especially the preposterous implication that lassez-faire economic policies gave rise to the Third Reich. Is that really what he suggested, or am I misunderstanding what he said?

In either case, I would have preferred to see more of a structured debate format. I don't think these little side by side interviews are good formats for contrasting competing views, and I'm not sure why they're so popular.

I agree with you, Russ should be a bit more assertive and definitely less nice. Not rude, however, the segment seemed to make the Hayek view somewhat of an idealistic joke and the Keynes side to be more pragmatic. Both sides, of course, have some romance to them, but certainly Hayek's view is far more pragmatic than Keynes' view, especially since the teachings of Keynes were not given much limelight in economics education in several decades until this recession.

I wanna use this rap in my class.....is it posted anywhere yet? I can't find it on youtube or anything.....

Make us proud as usual!

I look forward to it - although I hope people come out feeling enriched by both of them! Economics has turned into too much of a "celebrity death match" recently.

Yeah, people should really be more tolerant. Acceptance of truth and untruth are an integral part of our politically correct culture. Why can't we all just embrace doublethink and stop discriminating against untruth? If we permit this disease of untruth-ism to become rampant, it could lead to the intellectual genocide of all falsehoods! At least we can hope for deniers of the Holocaust of lies.

Hmmm... I was thinking more along the lines that reasonable people can acknowledge that most economists have something valuable to contribute (and all have something that ends up being flawed in their analysis), and that in any sort of scientific pursuit of truth the celebrity death match culture of monolithic, opposing ideologies is just plain ridiculous.

So - contrary to your insinuation I'm all for discriminating against untruth, and doing it vehemently. I'm just not willing to play into your game of Hayek vs. Keynes, battle to the death. I like a lot of both of them (and honestly I think most economists do greatly appreciate both Hayek and Keynes - and Russ clearly didn't play into this death match culture in the Newshour segment, despite the difference of opinion).

Oh, ok, I get you, so if Hayek is "wrong" (according to you, O Omniscient One) on some minor point, then therefore by logical necessity Keynes is "right." But what if Hayek is wrong on some point and that does not mean that Keynes is right? Oh, ouch, you didn't consider that possibility! Damn. So much for thorough thinking. But we know that not to be one of your virtues. Nevermind that Hayek might not at all have been wrong. It's just assumed that he was. Calling Keynes "right" is like saying that the alchemists were wrong about turning lead into gold, but lead and gold still exist as separate elements, and the alchemist was right about this all along. LOL, ROFLMAO.

Huh? When did I say anything resembling that? Of course Hayek and Keynes could both be wrong and certainly on some things Hayek wasn't wrong at all. It's also quite possible for both to be right about the same thing. You don't say "Newton was wrong and Einstein was right" do you? No - both are still useful and used, even though later discoveries and advances have added a depth to our understanding of earlier conclusions.

Anyway - I can't see anything in your post that I ever said, so I guess I'll leave it at that.