Running the risk of over-simplifying only a teeny bit, I propose that the key difference between the Keynesian/man-in-the-street view of the economic problem and a non-Keynesian view of the economic problem is the following: Keynesians/men-(and-women)-in-the-street sense that the dominant economic problem is super-abundance (and its attendant problem, excess capacity), while non-Keynesians understand that the dominant economic problem is, and will always be, the ubiquity of scarcity.
How else to explain the prevalence – as predictable as beer at a frat party – of claims that this tsunami or that hurricane or those terrorist attacks, for all of the human agony that these calamities cause, will strengthen the economy? Or looking at matters from the reverse, how else to explain the widespread fear that increasing trade with foreigners will cause permanent, or at least long-lasting, “loss of jobs” in the domestic economy?
If your sense of the chief economic problem is something close to mine, you sense that that problem overwhelmingly involves figuring out how to satisfy more human desires than currently are being satisfied. You sense also that the ‘failure’ to satisfy more human desires is a result of the scarcity of resources, along with limitations on the technologies, and on the legal and cultural institutions, that determine how scarce resources are transformed into valuable goods and services. The chief problem, in short, is one of scarcity.
If, on the other hand, your sense of the chief economic problem is something close to what J.M. Keynes, God rest his soul, believed it to be, you sense that that problem is one of super-abundance – a problem rooted in the curse of oceans of resources kept idle by lack of consumer demand. There’s just too much stuff, and too much capacity and labor available to make stuff, to ensure that all resources available for employment are actually employed. Labor being a productive resource – and one whose employment we (rightly) care about especially deeply – is among those resources which are generally, or at least very often, super-abundant.
Keynesianism, as I (and others) have said many times, is man-in-the-street “economics” – that is, it’s the economics that people (even smart people) stumble into before they are tutored in analytical economics and learn some economic history. (This is not to say that everyone who is tutored in analytical economics and exposed to economic history turns into a non-Keynesian. Far from it, alas.)
Every semester in my Principles of Microeconomics course when I explain that Adam Smith celebrated an increasing division of labor in part because it promotes mechanization, invariably a number of students shake their heads and wonder why Smith celebrated increased mechanization: “It destroys jobs,” these 18-year-olds, with only a few minutes of economics as yet under their belts, lament.
Untrained in economics, these young men and women simply assume that the increased volume of valuable outputs possible now to produce in industries X, Y, and Z by workers released by mechanization from industries A, B, and C will never be produced. A lack of imagination combines with an as-yet undeveloped ability to think like an economist – and a yet-to-be encountered exposure to economic history – to cause these students to see only idle workers. The problem isn’t scarcity, as these students see matters; it’s insufficient demand. Workers who can produce stuff but who are in a situation in which no one wants whatever it is these workers can produce.
The naïve concern is that consumers, for whatever reason, just don’t want enough stuff, or entrepreneurs are insufficiently bold and imaginative to figure out new stuff to produce that will spark consumers’ interests.
This primal, widespread, pedestrian concern was, of course, elevated by J.M. Keynes and his followers into an “economic” theory. Keynes, Alvin Hansen, John Hicks, Paul Samuelson and others did indeed construct internally consistent theories (even “models” offering magnitudes measurable in principle) in which superabundance of stuff is an “equilibrium” – not a rare and fleeting situation, but a frequent and potentially long-lasting situation. A situation so likely (and so likely to last long) that active, ever-vigilant government policy is required to counteract it.
Super-abundance of productive resources (especially labor) became the dominant threat perceived by Keynesian economists in the same way that super-abundance of productive resources (especially labor) has long been the dominant threat perceived by cab drivers, poetry professors, hydraulic engineers, 18-year-old college freshmen, and nearly everyone else unexposed to economics.
But this poetry-professor-&-hydraulic-engineer view of the economic problem is so very much at odds with the fact that people the world over – even the wealthiest of people in the wealthiest of countries – still grasp for more stuff. Still want more toys and more experiences and more entertainment and more creature comforts and more of much other stuff and sensations. And it’s at odds, too, with the fact that entrepreneurs (greedy bastards that they are) seek to get rich by supplying all this more stuff and sensations.
It’s at odds, in short, with foundational economics.
Share
{ 181 comments }
(This is not to say that everyone who is tutored in analytical economics and exposed to economic history turns into a non-Keynesian. Far from it, alas.)
Therefore, what Don is saying is that education may not change one’s worldview? So much for the hopes of academia to set the world right!
Your lifelong attempts to wrest from your juvenile students their innate humanity will fail except in the case of the most gullible ones. You job is to elucidate and educate, not to indoctrinate. Boudreaux is an affable, yet devious, high priest of the well-funded, right-wing GMU Madrasah. As the youngsters themselves would say, “Epic fail!”
http://en.wikipedia.org/wiki/Madrasah
I heard Obama went to one of them.
What?? Daniel?
You aren’t going to go after mao-dung’s silly rant??
I thought you were here to rightfully interject where things aren’t 100% accurate.
126.7% accurate, thank you very much.
Yes.
After all, shouldn’t a contrarian at least have the integrity to find fault in every post and not only ones of libertarian persuasion?
So, Daniel isn’t a true passionless contrarian after all.
Maybe Daniel is really just a Center-Left Keynesian Kontrarian. That’s what I thought when I first started reading his posts. First instinct is usually the right one.
This crush you two have on me is starting to get weird
Daniel, blame their crush on Animal Spirits.
*sigh*
Yes, tiresome child. You’re all we think about.
It’s not like you pop in here seeking validation for your heroic mental contortions or anything.
The crush is weird and the lack of a sense of humor is grating
Danny, that’s because you stopped being amusing a long time ago.
DK,
Poor diversion.
I figured you’d like my mocking of his hysteria!
Perhaps because “you sound like the Tea Party, Mao_dung” doesn’t sound like mocking when you read it… I’ll be more explicit next time, I promise.
That’s a really ugly habit you have there.
You think that 18 year olds have innate humanity? Have ever been an 18 year old? Oh… You’re still only 13 aren’t you?
18 year olds, like most young people are so thoroughly selfish that they think feeling good is being good. Having happy thoughts of hope and change to them is the same as actually doing something to change the world for the better thereby instilling hope in themselves and others.
18 year olds, as do most of the college age crowd, think that having a concert, getting high, and dancing around like fools will alleviate world hunger, free Tibet, and generally inspire good will towards all men.
As Thomas Sowell so eloquently put it: Each new generation born is in effect an invasion of civilization by little barbarians, who must be civilized before it is too late.
As Thomas Sowell so eloquently put it: Each new generation born is in effect an invasion of civilization by little barbarians, who must be civilized before it is too late.
Awesome. God bless Thomas Sowell!
“The first rule of economics is scarcity: there is never enough of anything to supply everyone. And the first rule of politics, is to ignore the first rule of economics. ” –Thomas Sowell
Keynesianism is a perversion of economics for the benefit of politicians.
Well said.
I’m a roboticist and it’s clear to me that one day in the future, whether decades or centuries from now, everything a human can do, a robot will be able to do better. At that point, the Keynesian state of affairs, at least with respect to a super-abundance of (robot) labor, will be realized. There will simply be no reason to employ a human to do anything. No employment, no paychecks.
On the other hand, a few thousand years ago, there was no automation of any kind and everything depended on human labor so there was no doubt a scarcity of (human) labor.
We are in a transition between the two states of (human) labor scarcity and (robot) labor super-abundance.
The Keynesians will eventually be right and it may be that they are currently starting to be right.
I doubt it. Ther will always be something people can do/sell that others want to pay for. Your thought experiment holds all other innovation constant against the robot. Wrong.
No. It holds human evolution constant relative to robot evolution which is accelerating hugely.
Well, then it’s just faulty in its assumptions as well.
You can’t assume all innovation will continue and then draw conclusions based on current patterns of production and innovation (outside robots). If you assume general innovations will continue in all senses, then you have to simply admit that you have no idea where things are heading and it’s far easier to assume that an infinite number of different jobs await.
Robots already do a lot more than they did 50 years ago and the diversification of jobs is extremely larger than back then. People do things for a living now that we could never conceptualize back then and the same will hold true at any point in the future.
If and only if humans hold some competitive advantage for some occupations does what you’re saying hold.
Chimpanzees could probably do some number of jobs in our economy. However, they can’t do any job as cost effectively as a human (except for sitting in zoos so we can stare at them) so they aren’t used for anything. Eventually the relationship of robot capability to humans will be like humans to chimps now.
Again Bret,
your idea rests on the premise that Robots are the only thing that changes. You can’t tell me much of anything enlightening about conditions and “ifs” from where we are standing. Not me, not you.
No. In the scenario I’m describing EVERYTHING changes EXCEPT human evolution, which is nearly constant (sure, in 100 years we’ll evolve a little tiny bit).
Do I know absolutely for sure that it’ll turn out that way? Of course not. It could be that man’s accelerating quest for automation coupled with exponential advances in technology stops dead at some point for some unforeseeable reason (nuclear war perhaps) and we never get there. I agree.
But if we get there, then the Keynesians will be right.
I used to think that, but I don’t anymore.
Humans are always coming up with new ideas and ways to improve things.
When one want is filled another one fills the void. By our very nature we are never satisfied.
Your world where there is no need for humans labor is a world of perfection. Every product is perfect. There is no need to make anything better. Every want is filled, every perceived need is satisfied, and nobody is dreaming of any more.
Not only does that sound like a stale and bleak world, it goes against human nature.
There will always be new wants and needs as long as we remain human, and there will always be a place for the human mind and hand to fill them.
Why wouldn’t the robots, who will be far more intelligent than humans at that point, make the products better?
I agree that there will always be new wants and needs, but at some point, the robots will be able to fill those needs more cost effectively than any human.
After you elucidate your new want (product/service or whatever), a robot, who can think 1,000,000 times faster than you has already set in motion the creation of the product before you’ve even finished your sentence. What place will there be for humans to produce things then?
You have one heck of an imagination.
No. I just read. For example, Kurzweil’s “The Singularity is Near”.
I stand corrected.
Kurzweil has one heck of an imagination.
Why wouldn’t the robots, who will be far more intelligent than humans at that point, make the products better?
You assume that we will never take a hand in our own evolution and enhance our own intelligence and powers.
That’s a good point and I believe that will happen as well. That would potentially change the competitiveness of humans a lot.
Still, it seems that the straight robot which doesn’t need food, clothing, (much) shelter, etc. would probably still be more cost effective than using humans. Maybe not, I don’t know.
Still, it seems that the straight robot which doesn’t need food, clothing, (much) shelter, etc. would probably still be more cost effective than using humans. Maybe not, I don’t know.
Humans and robots have a similar need: energy.
Humans have their own reasons. Will robots have their own reasons?
Humans are fundamentally driven by the life motive, survival.
Can/will we give that to robots?
would probably still be more cost effective than using humans
Cost effective to whom?
You misunderstand human nature. Even now, there is a huge market for all sorts of hand made things even though machine made goods are cheaper (think cars, clothing, etc). These goods are considered premium/luxury goods precisely because they are not cost effective.
a robot, who can think 1,000,000 times faster than you has already set in motion the creation of the product before you’ve even finished your sentence.
Unfortunately for your theory, “faster thinking” has pretty much nothing to do with innovation.
Your main problem, Bret, is that you’ve watched “Blade Runner” too many times.
If humans can’t benefit from robots, humans will trade each others’ labor as they do today. If they can benefit, then your problem doesn’t exist.
Your scenario makes no sense. Either robots are a benefit to man, or they are irrelevant to man.
Bret,
Have you read the Fatal Conceit?
I have. More than once.
What does the Fatal Conceit have to do with incremental, organic improvements in robotics and artificial intelligence by countless inventors (some of which will be robots) over decades and centuries?
I’m sure there were people in the middle ages who believe that in the future, the problem of turning base metals into gold would surely be solved and in the future everybody could be king midas.
AI isn’t quite like alchemy, but the older the field gets, the farther away the future appears. In the heady early AI days of the 60′s and 70′s most AI researchers though better-than-human intelligence was a decade or two away (and HAL by 2001 didn’t seem far-fetched). Now the people I know in the field don’t really expect human-level AI in their lifetimes.
AI has certainly produced many amazing special-purpose technologies, but nothing really in the way of general intelligence (and certainly nothing that exhibits anything like consciousness or self-awareness). So the economic problems of humans living as second-class beings in a world of super-genius robots is one we can safely ignore for quite a long time.
AI is always on the horizon and the horizon is an imaginary line in the distance that moves further away the closer you move toward it.
the closer you get to it.
look forward to return of “edit” button.
I did say “decades or centuries” so we’re not necessarily in disagreement about the time frame. And certainly there could be stumbling blocks (e.g. we might blow ourselves up first) along the way. But for now, we’re still plausibly on that path and in transition from scarcity of labor to super-abundance of robot labor and automation.
Sure, the early AI guys were a bit optimistic. but maybe not wildly so. Google has a self-driving car, Darwin (IBM’s computer system) won the Jeopardy championship. computers can talk and listen fairly well (Google maps and google voice search for example), etc. It’s only 2011 and all of the mechanics in HAL (2001) except the evil part are pretty easily imaginable if we really want to create such an entity right now.
Right now things are very expensive. They’re getting cheaper very quickly though.
It has everything to do with how you conceptualize forward progress.
The Fatal Conceit= You don’t know jack
No. The Fatal Conceit is that central planners can’t possibly know enough to rework the institutions of the extended order that evolved over thousands of years and contain the experiences and knowledge of lots of trial and error without screwing things up.
Robots haven’t been around for thousands of years.
Yes. I read the Fatal Conceit. I know. I am talking about how its premise is relevant here.
And your last sentence is irrelevant to the point of why the Fatal Conceit can inform the way of mentally approaching talk of what the future will be.
Bret,
Maybe you’re right. I have my doubts though. Let’s just agree to disagree on this.
I don’t think I care what happens centuries from now anyway. I don’t see the human eye being replicated in my lifetime, and therefore don’t see your prediction coming true in my lifetime.
Someday the Sun will burn out too. Don’t really care though.
Are you very old?
Otherwise, it’s likely you’ll see robot vision surpass human vision (in terms of seeing, understanding, and producing accurate internal models of what was seen) by about 2025, possibly before at about $1000 cost.
Or did you mean literally build biological human eyes? But why would we do that?
Bret,
I’m 34.
I’m willing to put $5000 that humans can not build an optical system capable outperforming every aspect of the human eye by 2025 (regardless of the cost)
Let me know if you’re interested.
I’m somewhat tempted, but not enough to take you up on it. The definition of “surpass” or “outperform” would stretch into pages and I don’t have time for that.
Also note that I didn’t claim “outperforming every aspect”. For example, the vision system might require somewhat larger volume and/or weight and may not work for 100+ years like the human eyeball.
But with 50 Megapixel sensors already available (since 2008, there may be something higher now) and the computation to process becoming more available by the year, I’m not sure what you think the show-stoppers are going to be.
We’re shifting from a service economy to an entertainment economy.
And robots just aren’t funny enough.
LOL! I always love your posts.
I’ve often said that the last professions to be automated are lawyers and politicians because it’s hard to make robots convincing liars.
Probably the same for entertainers, but I think eventually that will be doable as well by artificial intelligence.
Artificial intelligence is limited to the intelligence of the person(s) writing the code.
I hadn’t heard that one before. Why do you think that?
Are you a creationist? How else would the “code” for the human brain have evolved from lesser “intelligence”?
Bret – Artificial intelligence is nothing more than software. Just like Microsoft Windows. It is only as good as the guys who wrote it. It does not “evolve” any more than your car does.
You don’t know what “code” means in the context of computers and you say you’re in robotics?
I used “code” as in “genetic code for the human brain”, which is common usage in case you’re not aware of it.
There are several techniques in using simple programs that enable software system to evolve: genetic algorithms, simulated annealing, artificial neural systems, confabulation, etc. The resulting “intelligence” of the system is NOT the result of a person programming it, just as the human brain was not the result of programming.
“There are several techniques in using simple programs that enable software system to evolve…”
You’ve been reading too much science fiction.
AI is extremely limited. It is limited because of the limitations of the creators.
Unless you think humans are gods capable of creating life.
JohnK, your theory fails to predict the past – it’s long been possible for human programmers to write codes that perform better at intellectual tasks than the programmers themselves. And the scope of such tasks keeps increasing, with no clear end in sight.
Your theory could be unsimplified to the point of truth: “artificial intelligence is limited to the intelligence that the person writing the code would have if he had a good enough memory to recall quadrillions of data and enough time to perform sextillions of calculations on that data by hand”.. but at that point it hardly seems like much of a limit, does it?
If robots can do everything, why would I want to work? The point of working is to get the output – if I already have the output, why would I want to work?
That’s exactly the question, isn’t it?
Or rather, how is the output to be allocated?
People will own the robots and product assets. But they won’t own them evenly. And if somebody loses his ownership of productive assets (say, via bad investing, gambling, etc.), then it’s a death sentence because he’ll never be able to work to earn the money to feed himself or otherwise buy enough productive assets to have access to the super-abundance.
Either robots are in such abundance that they readily obtainable, OR humans can sell their labor for less than the cost of a robot. Either way, the human wins.
“There will simply be no reason to employ a human to do anything. No employment, no paychecks.”
That’s a great thing! We don’t need paychecks if everything we want is available to us in abundance.
There can never be enough robots to satisfy human desires. And the more robots there are, the less humans need to labor to gain their benefits. That enriches humans.
I find your claim that robots will soon be making movies, writing novels, playing sports, designing new fashions, and recording music rather unbelievable (you said robots would do ALL jobs). But let’s imagine that this is true for the sake of argument. People don’t need jobs; they need goods and services. If, some day, robots meet literally ALL our needs and desires, what we end up in isn’t a Keynesian hell of permanent unemployment, it’s an idyllic heaven of a permanent vacation.
This will just increase the types of things people a) use robots to do, and b) do themselves. There is no end of history.
Keynesianism is like:
http://www.youtube.com/watch?v=YIoKrL_8pt8
See 17:53 to 18:51
Another minute or so after is also somewhat relevant.
Very, very good. Thanks for posting that.
Allow me to play devil’s advocate. Wasn’t it Keynes the one who said, “in the long run we’re all dead?” Consider the following (limited hypothetical):
Suppose all factory workers age 40 and over, who have only really ever worked on the assembly line, are automated/off-shored out of a job. Assume none of them have above a high-school education, and they have not formally used writing, analytical, business meeting skills at any point in their adult life. Given this specific scenario, is it not fair to say they are screwed; they realistically, as a whole (outliers aside), have no real hope of ever earning near what they once made, and are only qualified to compete for, but not necessarily secure, entry level work as they “start over,” competing against younger/foreign workers.
For all practical purposes then, is it not fair to say that mechanization destroyed those jobs, those jobs are never coming back, and people once pretty productive, are now not productive at all (even if you say they could be productive working at entry level jobs, surely unskilled out of work immigrants could be even more productive at those jobs)? Sure, in the long run there will probably be net gains, and certainly nobody should oppose advances in technology and science. . .
But, given the political forces marshaled by groups like the ones described above, and their supporters, suddenly Keynsian ideas like digging ditches, or things like “make work” are not so crazy. There is a net gain if you automate and put up with some make work projects; there is a net loss if there is a workers’ revolution and technical advances are banned or impeded for the next 50 years.
“For all practical purposes then, is it not fair to say that mechanization destroyed those jobs, those jobs are never coming back,”
Yes. But the goal is not effort so your observation is rather moot or of no value in an economic sense.
This is not to detract from the plight of displaced workers, it’s simply an economic statement of fact. History is full of examples of such workers. But that doesn’t stop history from moving forward or halt innovation in changes of patterns production.
The problem with quickly looking to these problems is that it is only one side of the argument and still only one part of that side.
You have no way of knowing how these special cases turn out in real life and any example you give is anecdotal.Life does not stop at a point where it’s convenient or advantageous for some. Many lost their jobs along the way during innovations that led to the now lost job of the example you cite….and it will continue.
Well sure, there is no way of knowing for certain, but one can draw reasonable conclusions. Consider heavy manufacturing done in an industrialized country. When those jobs are transferred/automated to a developing country, the productivity of the workers in the industrialized country plummets, and for a significant number, goes to 0 or even negative numbers, because now they receive a government payout. If the machinery that replaces them is coming from some other sector, that is depriving that sector from that machinery/resources (at least in the short term). If labor is replaced with cheaper labor, there is no guarantee that overall productivity increases. Overall productivity may well have been higher with the first set of workers working and the second set farming, as compared to the first set doing nothing and the second set now doing the job the first set used to do.
Sure, on balance, looking forward, one cannot argue as policy that automation or off-shoring should totally stop. But, it is not like the very fear of one country developing a specific industry at the expense of another, for a period of time of significance, say 20 years, is bizarre or far-fetched.
My point is only that while people who only see down-sides to automation and off-shoring may be missing the forest and only focusing on the trees, it seems that people like John V may be not realizng the forest, while growing over time, has a lot of Dutch Elm disease and forest fires from time to time, which, if left unchecked, pose a very real danger of damaging the entire forest for a significant period of time, up to and including entire lifetimes. My thinking is this metaphor applies not only to the creative destruction of innovation and off-shoring, but also to market crashes and bubble pops.
One rational, tried, tested, and arguable solution is Keynsian-style (attempted anyway) management of the overall economy by the government. Empirically, what large-scale society has achieved success in being a rich nation without heavily Keynsian-type tinkering now and again? I am not persuaded by the argument no one has ever tried it differently on a large scale before. Look at how this country advanced on a continum of very little central control/no government safety net to greater central control and more of a safety net. Are things really worse now then they were then from an economic perspective? I’m just not convinced.
“Consider heavy manufacturing done in an industrialized country. When those jobs are transferred/automated to a developing country, the productivity of the workers in the industrialized country plummets, and for a significant number, goes to 0 or even negative numbers, because now they receive a government payout. If the machinery that replaces them is coming from some other sector, that is depriving that sector from that machinery/resources”
Well, without getting into an explanation, ask yourself how it is that technology and trade have rendered so many domestic jobs obsolete during past 100 years and yet we are now more productive as a country and life continues to improve.
The correction explanation lie at the end of that road and not the short term distractions that you are dwelling on.
Your Forest/Trees claim is actually quite ironic.
In the long run we’re all dead, which is a reason to dwell on the short run.
Why have them dig ditches? Just give them the base salary anyway and see if they can find a job to add to the base salary provided!
I’m not crazy about unemployment benefits, but it seems to me that they are an objectively superior alternative than the creation of absolutely unproductive jobs.
“is it not fair to say they are screwed”
No. After seeing many of the people you described laid off only to find better jobs, in better working conditions, I’d say you haven’t been paying attention. It’s a good question to ask, but the answer has been given empirically and the answer is no, they are not screwed.
“given the political forces marshaled” by unions businesses have a vested interest in mechanization rather than human labor. You lament workers being laid off, but ignore that the workers themselves, by their ridiculous demands and political connections, are the primary reason for mechanization.
If there is a better job for someone they should do that job. They should not have to be laid off or have their job made obsolete first.
Basically, what you are saying is that laying someone off will make them more productive. Just like a tsunami is good for your economy…smells like Keynesianism to me.
That’s not what I’m saying at all. What I am saying is that people are comfortable in the jobs they have. If they are in the situation Bill describes many believe what Bill has to say. Since this meme is said over and over people who live in such a one dimensional life is likely to believe this.
However, once laid off, i.e., being forced to look for another job will find that they have far more opportunities open to them than what people like Bill is saying.
Lastly, laying people off is NOT the same as a tsunami. Only an idiot would believe that. A tsunami destroys wealth as it rolls over everything in its path. If someone is laid off NO WEALTH HAS BEEN DESTROYED!!
What you’re smelling is the shit spewing from your mouth.
I was with you until the last line – how frikin’ intelligent of you to come up with that one.
Regardless, if someone is laid off – the work they were formally doing is no longer being done so wealth may not be destroyed, but it’s no longer being created either. Further that with the fact that they are probably going to claim UI etc. so wealth is, in effect being destroyed.
Seriously though, if your best response is to through insults around, then no one will take you seriously. Thanks for playing though.
“Seriously though, if your best response is to through insults around, then no one will take you seriously.”
OH NO!! You’re not going to take me seriously!! I’ll have to call my mom later to let her know some anonymous person online doesn’t take me seriously!
“Further that with the fact that they are probably going to claim UI etc. so wealth is, in effect being destroyed.”
How is claiming insurance destroying wealth? You pay premiums such that the average person pays more into the system than the average person is expected to collect. So when a person collects insurance, wealth is NOT destroyed. That’s like saying when I draw down my savings to buy a car wealth is destroyed because my bank account now has a smaller number on my statement.
Idiot.
Oh common man! We are on a libertarian blog here, the Keynesians are down the street and on the left.
You are defending UI – Unemployment Insurance destroys wealth! It’s a tax! Even worse, since I’m self employed, I can’t even claim UI if my business goes under. So, I’m basically paying money to keep other people feeling safe and happy while I could have used that money for something much more productive. On top of that, I have to make sure I save some of my earnings so that I can keep my business a float during lean times.
I can’t believe you’re getting riled up over my comments. Get exasperated if you want, but not all unemployment insurance is provided by the government. I am in favor of eliminating government mandated/provided UI, but not all UI IS government provided.
Also, when you get laid off you are NOT automatically entitled to government provided UI. I was a full time student in Austin working full time in the high tech sector in the early aughts. Well the bubble burst and I got laid off. Since I was a full time student as well, I was NOT entitled to UI benefits.
So in two ways your answer is wrong because you made no qualifications. The third way you could be wrong is that a state could actually know what they are doing when administering UI. I know it’s unlikely, but I really don’t know the details of all 50 states UI plans.
wyLex,
I sympathize with you. I’m an employer, not an employee.
I don’t see Ken defending UI. He is pointing out that buying and collecting on insurance is not wealth destruction.
UI is lot more like a tax, though, and like all taxes creates distortions. Distortion is what you describe, not wealth destruction. It’s not your wealth that is being destroyed, it is your incentive to hire and produce and the unemployed person’s incentive to find a job.
Ken,
It’s not the government that pays unemployment insurance, it’s the employers.
Ok fine, I’m not intimately familiar with the UI laws either – mostly because if never been able to use it – but I have been able to pay into it – funny how that works.
Still, someone that is not working is not creating wealth. If they self insure you might argue a net zero with respect to the overall economy but not the individual. If they are drawing UI I would say negative. If they are drawing severance pay, I would also say negative.
It’s not necessarily so that if you’re not working you’re not creating wealth. I do things around the house all the time, like finishing a basement, painting, building things and so on that no one else is buying (work), but things I enjoy doing or having, so my wealth is increasing.
Also, not creating wealth is not the same as destroying wealth.
But you are still wrong about the insurance payouts being negatives. You are also wrong about severances. Those are voluntarily given by companies. Since they are not coerced I can only conclude that it is in the companies best interest to pay them out, hence NOT a negative.
It’s not the government that pays unemployment insurance, it’s the employers.
Unemployment insurance is necessarily paid by the employee. The employer may handle the transaction, but UI is considered as part of the cost of the employee, and if the employee isn’t worth the total cost, he won’t be an employee.
To wyLex,
I assume that if you ever hire a gardener, that you will never fire that gardener, unless he first obtains a better job. Otherwise, you will be resonsible for the ending of a wealth-creating relationship.
If you hire someone to paint your house, I hope you don’t “lay them off” when they finish painting the house. Why should they stop working merely because you come to see their work as obsolete or of no current use to you.
Andrew,
Just because laying off someone destroys wealth does not mean that employing them to “dig ditches and fill them in again” creates wealth, or in your example, not firing someone you have no need for. It destroys wealth when you lay someone off. Wealth is created when people are working, not when they are sitting around collecting tax payer money. Since workers have UI to fall back on, they don’t self insure. This places the burden of their unemployment on everyone.
Ken on the other hand is suggesting that people who are laid off find better jobs – creates wealth(?), and that drawing on insurance does not destroy wealth – which is simply ridiculous.
Wealth is created when people are working, not when they are sitting around collecting tax payer money.
Not creating wealth is not the same thing as destroying wealth. Foregone wealth is not destroyed wealth.
Since workers have UI to fall back on, they don’t self insure. This places the burden of their unemployment on everyone.
That’s a wealth transfer, not wealth destruction. The incentive to produce (create wealth) of those from whom wealth is transferred and two whom wealth is transferred may be partially destroyed, but no wealth is destroyed.
“Ken on the other hand is suggesting that people who are laid off find better jobs – creates wealth(?), and that drawing on insurance does not destroy wealth – which is simply ridiculous.”
It’s so ridiculous that for the most part people do find better jobs. After the above conversation about insurance, you’re merely sticking your fingers and your ears going lalalalalalala.
Idiot.
To wyLex,
I don’t see how your reply relates to the points I raised? You seem to be answering something from another commenter. I’ll try to make my question clearer.
You said: “If there is a better job for someone they should do that job. They should not have to be laid off or have their job made obsolete first.”
So, how does this apply to you? I assume that you would not fire a gardener for any reason, because “they should not have to be laid off” before they find a better job. Is that right?
You said: Regardless, if someone is laid off – the work they were formerly doing is no longer being done so wealth may not be destroyed, but it’s no longer being created either. Further that with the fact that they are probably going to claim UI etc. so wealth is, in effect being destroyed.”
So, when your house is painted and you lay off the workers, you have arranged to not create further wealth. In fact, they will collect UI and destroy wealth. So, how should this affect your actions? Do you lay them off anyway and destroy wealth? If so, what is your point? What action or inaction does your insight recommend?
Andrew, ok got it, I see your point and my mistake. The gist of the argument of the poster I was replying to is that someone who gets laid off is “not screwed” since they will find a better job anyway.
My first point is that in an efficient market system, everyone should have the best job for themselves and making the highest wages possible. It was actually Keynes who argued that this is not true, that wages are sticky and that, in the short run, people may not have the best or highest paying job.
My second point, which is where I screwed up, is that yes, when you lay someone off, they will find a better job if they have a desire to work – or at least this is what classical theory would tell you. So, ultimately, I don’t have to worry about laying someone off.
mea culpa
To wyLex,
Thanks for your thoughtful reply.
You are correct that we can’t assume that a person, laid off, will find a better job, or any job. His current job might be the last or best one he will ever have.
Still, I don’t see the policy implications. What force of law could possibly improve the situation? It would be like passing laws (like some in Europe) that you can’t fire your gardener after you have hired him. Of course, they make these laws apply to “corporations” so that voters don’t see the problems.
Keynes prescribed printing money, assuming that if there were enough of it being distributed, then everyone would be employed. I don’t see the mechanism that does that. I do see the mechanism that impovrishes the society, as real wealth is extracted to give value to the new money. Printing money is a tax on everyone who holds money. It is a political trick.
“Keynesianism is a perversion of economics for the benefit of politicians.”
Maybe the most important reader post ever.
“I’m a roboticist and it’s clear to me that one day in the future, whether decades or centuries from now, everything a human can do, a robot will be able to do better. At that point, the Keynesian state of affairs, at least with respect to a super-abundance of (robot) labor, will be realized. There will simply be no reason to employ a human to do anything. No employment, no paychecks.”
Actually, we already have a test of this theory. There are companies now selling the benefits of having a human on the other end of the line because these perfect replacements are so despised.
All machines have limits-human want does not. There is never enough-enough is “just a little bit more”. You may understand robots, but the first premise of economics eludes you, perhaps because you don’t spend enough time with people.
Crude Keynesianism is indeed abhorrent, irrational and wrong. However, Keynesians do have one insight and its the idea that there are things called ‘Demand Shocks’ and they matter. Monetarists, quasi-monetarists and even ancients understood the problem of nominal shocks. Their cause is debated but never settled, perhaps it never will be.
However the remedy has been known since a few centuries – to increase the supply of cash. Scott Sumner can tell you why this is the case. Austrian economists are doing themselves no favor by ignoring nominal shocks. If they want to be taken seriously, they must tackle the notion head-on, and if they deny it, they must supply rigorous arguments.
Con Man,
You referred to demand shocks and nominal shocks.
I have no idea what they are. Elaborate please.
But whatever they are, increasing the supply of cash is not the solution to any problem but a major cause of them.
Why would having all our wants and needs satisfied be a bad thing? It implies unlimited plenty, and everything we wanted being free for the asking and taking. What’s wrong with that? If you miss the activity of work, get a hobby.
If the man-in-the-street had any sense, he’d get on the sidewalk.
Now that’s a good comment. Glad to see you’re trying harder.
Given Don’s description of the fundamental tenet of Keynesian/person-in-the-street “economics,” I can see why environmental extremists might be drawn to these ideas: people have too much stuff already.
Sorry but this didn’t explain anything.
Sure everyone wants more stuff but that is not the same as people having the wages and jobs to be able to actual demand ( purchase) more stuff.
You write , “And it’s at odds, too, with the fact that entrepreneurs (greedy bastards that they are) seek to get rich by supplying all this more stuff and sensations.”
They don’t supply stuff for people with no jobs or money? You’re NOT making any sense. It makes a lot of sense that if wealth was a little less concentrated and say people could work 35 hours a week and that gave everyone a job THERE WOULD THEN be more demand and more money for which the entrpreneurs could supply prodcut for.
Keynesiansm makes plenty of sense. We are seeing the lack of demand effects right now. Corporations have huge amounts of money and profits yet they are not hiring or investing because no one else is spending… there is insuffecient demand… because so much money is stashed away at the top.
Point at which economic illiteracy takes over:
“Sure everyone wants more stuff but that is not the same as people having the wages and jobs to be able to actual demand ( purchase) more stuff.”…..
The fact that you go here with the discussion shows you don’t understand. Your illiteracy prevents you from seeing the issue correctly…namely that jobs and the wages they provide are a byproduct of production. Since you don’t get this, your framework remains goofy and wrong…like that in that video I posted above.
“…namely that jobs and the wages they provide are a byproduct of production.”
Production for who? No one has money to spend John and that’s why corporations are sitting on trillions of dollars and not investing. According to you they should be making things but they aren’t are they.
Trickle down is BS… wages and thus demand pushes the cycle. Locked up dollars in billionaires closets don’t demand to be spent… force those dollars into road builders hands and they will need houses and things and the the economy will grow. This isn’t to complicated John unless it steps on your ideological toes.
See Say’s Law.
force steal those dollars and put them into corporate owned and politically connected road builders hands
ftfy
I suppose, instead of money, people were trading their souls for all of those iPad 2′s sold last Friday…
Hyperbole doesn’t help your case.
force those dollars into road builders hands and they will need houses and things and the the economy will grow.
Yeah! That’s the ticket, Muirdiot.
What are ya gonna do after you run out of all the billionaires money, though?
Demand that the Federal Reserve print enough money to make more billionaires to steal from, of course!
NO ONE is SITTING on trillions of dollars. That money is either tied up in investments (not being sat on) or in a bank (being lent out, which again is NOT being sat on), so you’re argument falls apart immediately because your basic premise is, shocker of all shockers, wrong.
Then, yet more shock, you want to use force and steal other people’s stuff so you can have it.
Selfish. Arrogant. Asshole.
Condescension from someone so dead wrong like you is actually funny.
No need to pile onto the pile of comments but you just don’t get it. You really don’t.
No one, literally NO ONE, has money to spend? Last I checked, our money supply was well above $0, the average income was above $0, the median income was above $0, and unemployment was below 100%.
“Sure everyone wants more stuff but that is not the same as people having the wages and jobs to be able to actual demand ( purchase) more stuff.”
This is the very point that Don is making. Don is claiming that Keynesians define economics based on abundance, but the reality is that economics is defined by scarcity (people demand more stuff than there actually is).
Your second paragraph is complete non-sense. People work the number of hours they want to work and are paid according to how productive they are. People who get paid a lot either work more hours, are more productive per hour, or both. Say you are a fairly productive worker, so only work 35 hours per week instead of 40. That loss of 5 hours of production cannot simply be turned over to me.
As to your third paragraph, the fact that you would even make the claims you do in your second shows that you don’t even understand economics well enough to evaluate ANY school of economic thought, much less Keynesianism. You seem to think that savings somehow means “not in use”. Did you ever wonder where banks get their money to lend out? Your savings is what banks lend out. In other words there isn’t any money “stashed away at the top.”
Riddle me this, TFI:
How are these entrepreneurs able to amass these vast profits of which you speak if, as you claim, there is no demand for their product?
It’s all so simple in a simpleton’s mind, isn’t it? All that irrational hoarding! Just take a little from the top so that there won’t be any incentive to produce ever again. Then, what will happen to demand?
In a world of unlimited plenty, with no scarcity, you wouldn’t need a job and an income, for everything would be free, like the air we breath.
I’ve been struggling with how to respond to this, because it seems like these discussions go around in circles. I have a hard time taking this seriously with a concluding sentence like the one you have – but then, when one dismisses things like this as unserious, they end up getting repeated.
But perhaps this is a way to approach it – with a question. Have you ever submitted these concerns and critiques in any formal way to Keynesians to evaluate? If not why not? If you have, how have they responded? From what I can tell from your CV, you haven’t written much on this and it’s been in sources like the National Review, which needless to say does not offer a rigorous Keynesian peer review or comment.
Why don’t you write this up and submit it to a flagship journal – a major mainstream journal that will allow intelligent reviewers to assess the merits of your claims? Your points in this post strike me as naive for reasons I’ve mentioned many times before – the diagnosis is completely wrong, which makes the conclusions useless. But I’m never going to convince you of that. The assessment you and Russ provide on this blog of Keynesianism is sweeping, regular, and critical enough that if you truly have confidence in it it seems to me you should submit it formally to your peers rather than to blog commenters. Have you ever considered this? I sincerely think you should.
Daniel,
You’re a real nice guy.
Don has not only granted but encouraged your absolute freedom of speech here, and that isn’t good enough for you. You want him to go hat in hand to those who wouldn’t let you in the back door.
So I am going to say what you’re not gracious enough to, thank you, Don, for all you and Russ have done for us. And you sure as hell don’t owe us anything more.
And if Daniel wants more, he can try to get it from those journals he thinks so much of.
Good luck on that, you silly ass.
It’s ingracious to note that at this point they have essentially developed an argument, and that having developed an argument it’s worth submitting to a jury of their peers rather than continuing to kick it around on a blog?
Daniel,
You’re only about thirty years behind the times. The age of the scholarly journal is over, as it almost over for the rest of print journalism. The internet is where it’s at. And this site particularly is where free speech is at, unlike your scholarly journals.
Let those who don’t offer free speech come to those who do, rather than the other way around.
Why does peer review have to be in print?
I have had comments deleted from Left of center places Econ View and DeLong for less than what you do here….and nowhere near what morons like muirgeo and mao-dung and gil do.
Consider yourself lucky our hosts are not close-minded and intolerant like some other places where your way of thinking is the norm. And perhaps that idea is a short way of partly answering your question.
Daniel,
The other day you explained a demand curve better than I’ve ever seen, and I really profited from it, and appreciated it. I don’t think there’s anyone here with more ability than you, smarter, better informed. But you seem to have ants in your pants. You just can’t sit still even for a moment. You must constantly be thrusting yourself into the middle of everything whether you have anything intelligent to say or not. And when, most of the time you don’t, you manufacture your pretentions to it. If you would give yourself and the rest of us a break once in a while, and allow your mind to focus on what really matters, you could be a great contributor to the discussion, rather than just an irritant.
Grow up!
*liked*
Just out of genuine curiosity, Danny….do you ever suggest to Krugman that he take his oft repeated utter tripe to peer reviewed journals instead of printing it in the NYT and on his blog?
BTW, just for the record, from reading your many discussions with Russ and Don, it’s not so much that your discussions go around in circles so much as you do. Not that I’m not grateful for them.
the discussions, I mean.
Holy cow, I had no idea I’d get grief over this.
Krugman wrote one Slate article on the Austrian school and a handful of blog posts. He doesn’t offer any reason to think he’s read any of the literature. He doesn’t really have a developed critique of it at all. So no, writing something formal would be a waste of time for him. The case is different with Don and Russ. Saying “you should publish this” is not an attack. It’s simply an observation that the argument might be more productively brought to other venues. Christ, you guys get angry over anything.
No. What you’re saying is:
“Don and Russ, if you think you know so much, why don’t you take this to high alters of economics instead of just saying it here”.
And no, that didn’t take any imagination to see.
Actually, I merely asked you a question. Christ, you’ll whine about about anything.
And you know what else, Danny K? I’m very grateful to Don and Russ that they expend the enormous amount of time and energy it requires to bring these arguments to all of us rather than limit their audience to a small group of elitist academics who have for decades marinated in their own prejudice.
Who said anything about limiting their audience to academics?
This was not you?: “…it seems to me you should submit it formally to your peers rather than to blog commenters.”
I do wonder why you don’t seem to consider that any of D&R’s peers read the blog.
I didn’t read it that way, Methinks. Blogging and submitting papers for peer reviewed journals are not mutually exclusive–they can do both.
Michael, I realize these are not mutually exclusive.
I guess when I read “…you should submit it formally to your peers rather than [emphasis mine] to blog commenters.”, I naturally think “instead of”, not “in addition to”. Am I mistaken in my understanding of the meaning of “rather than”?
Oh good point – ya, “rather than” was wrong for me to say. I’m not going to tell a blogger what they can blog about. I just get the sense that some of these posts are spinning their wheels and they could get a lot of mileage out of bringing the arguments elsewhere.
LOL, Daniel.
Read what you wrote! “Bring it elsewhere” means “not here”. That’s pretty much the same as “rather than”! You’re usually very articulate. What’s wrong with you tonight?
Point blank question: Do you think Don and Russ should stop posting their criticism of Keynesian economics on their blog and submit it to a peer reviewed journal instead or not?
Methinks,
You’re understanding certainly isn’t lacking. I had taken, from the context of his post, that he meant to write rather than just, which alters the sentence’s meaning. Perhaps I infer too much.
It’s also notoriously difficult for Austrian economists to get published (I think Byran Caplan blogged about this a month or so ago), and when a detractor suggests submitting work for peer review to one I usually read it as a compliment. Again, perhaps I infer too much.
Michael,
It would be more of a compliment if Daniel weren’t a twenty-something student offering rather officious suggestions on where to publish to a tenured professor. That’s just my opinion.
I’d rather not infer from Daniel’s statement. Daniel is certainly articulate enough to say exactly what he means. If he misspoke, he can always post a correction.
If he happens to notice the mistake, he can post a correction.
I try to assume good faith in these forums.
re: “Do you think Don and Russ should stop posting their criticism of Keynesian economics on their blog and submit it to a peer reviewed journal instead or not?”
Of cours they should keep posting. I think they have an argument that they’ve honed enough that isn’t getting much productive feedback here, though. Keep posting it by all means but submit it to harsher scrutiny. Would you agree with me that this is a good idea?
Michael –
Part of why I say this would be worthwhile is that I do think it would get a lot of criticism, because I do think Don and Russ only engage a parody of Keynesianism. Their peers will highlight this. It has nothing to do with the fact that they’re Austrian – they both have distinguished careers and they’ve both published in major journals before. Caplan, in his post on that, completely dismissed the notion that Austrians can’t get published in major journals. That having been said, I do think they’re argument will run into major criticisms. But that’s largely the point. That’s how the argument gets better.
No, Danny, I will not agree with you that this is a good idea because I do not know what’s good for Don and Russ. You may enjoy seeing it in a peer reviewed journal (if it’s accepted), but that may not be, for reasons we may not be privy to, a good idea for Don and Russ.
I’m also not under the impression that Don and Russ post here to get “productive” feedback from their peers in their profession. It’s my impression that at least one of the reasons (maybe the dominant reason) they run this blog is to give ordinary people (non-economists) something to think about – an alternative narrative to the constant government-knows-best drumbeat.
No. He would never do that. Krugman’s his man. He isn’t a contrarian to Krugman.
I’ll take one stab at this:
One possible reason implicated in the whole answer (which I do not have): The culture of economics is academia is heavily biased to a certain frame of mind. Keynesianism allows the economist to move from an informed observer of phenomena to a DOER. It allows for more possible answers to problems since its framework just drips with a lot of possible answers to a very large variety of problems. That frame of mind revolves around the idea of USING economics in a way that makes it empowering and as far away from something stuck behind a glass wall (like philosophy) as possible. In a manner of speaking, the economics sphere responds to incentives in the real world. It has to have a purpose for jobs (see government).
Another reason is kind of like what makes the overwhelming number of journalists the way that they are…left of center, statist and always status quo: Certain professions have a culture that one must placate or be like in order to get in. In academia, I think conventions that are accepted are hard to change. The more influential the position, the less things deviate from the accepted norm. Near the top, it’s crowded with like minded thinkers who reinforce each other. Pete Boettke speaks often about this “break the barrier” thing at Coordination Problem as you may have seen.
Yes, there are “in crowds” and penetrating that in-crowd is hard unless you are one of them or want to be like one of them. Pride and self-importance are also part of the problem. There’s way too much invested in the status quo to just “drop it”…hence the human element of vanity and self-preservation. The furthest reaches of astrophysics is kind of like this. But since it is ultimately a solid science, agreement can eventually be had once the data is there. Economics will never be that way. Krugman claims to have never read any serious work in Austrian Economics. That’s astounding! Why no curiosity? Where’s his thirst for knowledge and a broader view? I guess learning and advancing isn’t all that it’s about. And whatever Krugman knows about AE, he probably heard from a professor he admires aspired to think like. Why is it so hard to believe that the whole thing operates like this?
Take this into account, DK:
People like Dan and Russ know Kenynesian Econ. All economists do. It’s required material for any econ degree. Why it is so compulsory? See my two reasons above. OTOH, where Don and Russ and others are coming from is not so well understood. I certainly don’t take it for granted that most economists are really that well versed in things Don and Russ and others at places like GMU are well versed in.
It shows when they talk. The ideas and frames of mind informed by institutional economics, public choice theory and Austrian Economics and even how they inform neo-classical economic analysis are not present when I see people like Krugman talk. It’s simply not there. It’s kind of like when Muirgeo talks and you can tell there is zero economic literacy of any kind. You can just tell by what he says. Same thing.
well said, John V. Like^1,000,000.
I’m not going to respond to all that’s here, except to address this notion that Keynesianism is the bread and butter of the mainstream. This is a major misconception in certain quarters. The fact is, its really not. You get a lot of it in lower lever undergrad instruction, but its often not even touched in professional economics education. I didn’t see any of it in the graduate macro I took at GWU, and that’s a pretty typical mid-ranked university without any major ideological bent. When you do get it, you get New Keynesian stuff that’s really just neoclassical stuff with price frictions. Don wrote an article in 1987 called “Why Keynesianism is Dying at Fifty“. There’s a reason he wrote that. You can go through an entire graduate education at a major university and not get any Keynesianism. There are good reasons for that – it’s not like what replaced it wasn’t good work. But I think people see it when they go to college on a chalk board in a big lecture hall and then get a misconception of what gets talked about outside of that.
You can go through an entire graduate education at a major university and not get any Keynesianism.
And yet, as John points out, Keynesians dominate the field. Why is that?
Well, DK
When I say “Keynesian” I am kind of referring to all of it…both its origins and the evolutions it saw its way through to the present day. Whether its Keynesian, New Keynesian or Neo-Keynesian.
But regardless, my point is that every economist knows and learned what people like Krugman take as canon. The opposite cannot be said about the free-market economics espoused by by our hosts.
I’m no economist. And I have never claimed to be. Whatever raw foundation I have came from reading Hazlitt, Hayek, Sowell, Misesm, Rothbard and the video seminars and audio from the Mises Institute. I am sure they were other pieces along the way that I don’t recall….and then there are articles and papers beyond that. And I did this before ever reading or understanding anything more mainstream. Having learned the way I did, I was instantly repulsed by what I read from a more Keynsian angle. It all seemed silly and the basic…almost organic…notions of the market process and the role of prices and scarcity and the measurable ideas of utlility and preference and human action and all the rest and how it all weaves together to form the foundation of what we see in reality made it seem so nonsensical and preposterous. I really couldn’t believe that people took this crap as seriously as they did. Now, I realize that it is far more advanced that I will ever know but from the foundation, it seemed just like that video I linked above about the evolution of how we understood the movement of planets in the sky. It really did seem like I went from the modern understanding of those movements to some silly and complex POV that made things out to be something they weren’t.
And no matter what I ever read from Krugman and others, my mind can never help but say “But what about….XYZ?” And I am talking about basic ideas that seem to be discarded because they are too precise for the blunt and simplistic framework of mainstream keynesians today. They seem so knowledgable about so many complex ideas but blind to the most basic things that I have been unable to unlearn from the Austrian-influenced view. And I remain convinced that most have no idea what it is.
I’m not completely clear on what your issue is except that Don, like many of us here, don’t buy the Keynesian description or prescription.
I can only tell you what I find wanting in the Keynesian model.
When libertarians talk about free markets, you’ve no idea what they are talking about. If you think otherwise, I invite you to describe a free market as a libertarian might.
What I find wanting in Keynesian economics is that it is entirely based on the premise, indeed the necessity, of a central monetary authority.
All the Keynesian models are unable to deal with the reality that a central monetary authority must necessarily be political.
So when the monetary authority engages monetary policy, it will do so for largely political reasons.
So why are there economic shocks and why must the monetary authority deal with them?
What is the free market alternative for dealing with said shocks?
OH god, can’t edit, close italics
Indeed, I doubt there would be Keynesian economics without a monetary authority.
I doubt there would be a monetary authority without Keynesian economics.
Never mind the fact monetary authorities pre-date Keynesianism by no less than two and a half centuries.
I don’t believe Keynesianism started with Keynes. Those fallacies have been around forever.
He just articulated them in a way that allows politicians to say “See! Here’s an academic excuse for our meddling in economic affairs!”
re: “All the Keynesian models are unable to deal with the reality that a central monetary authority must necessarily be political.”
There’s a large literature on this. Prominent Keynesians like Alan Blinder have addressed this. In the vicinity of George Mason alone, I know work has been done on this at Georgetown and American University. And of course the massive literature on monetary policy rules can be thought of as an investigation of monetary policy as a discretionary policy rather than an efficient market process. I have no clue if the public choice crew at Mason works on these issues or not. I don’t know if any libertarians have worked on it.
As I said in my original comment, Keynesian economics is economics for politicians. It is economics for people who have suspended the first rule of economics: scarcity.
Consensus (the result of “putting it up to a vote”) is something for politicians.
The economics that Don and Russ espouse is not the kind of economics that pleases people who decide things with a vote. Political types can, with a vote, repeal the law of Supply and Demand.
Does that make it so?
Why should economics be decided by popularity?
Either it is or it isn’t. Popularity has no bearing in the matter.
What would happen to the appearance of a superabundance of labor if, instead of receiving welfare, people who were hungry resorted to subsistance farming?
(By this I don’t intend to criticize welfare. I’m just noting that it disguises the natural state of the labor economy. Without welfare, and with the ability to subsistence farm, the poor do not have available labor – they are busy bees indeed).
What would happen to the appearance of a superabundance of labor if, instead of receiving welfare, people who were hungry resorted to subsistance farming?
Wow. Unskilled farmers without access to arable land resort to subsistence farming and you imagine that they’d be ‘busy bees indeed’
I’m not sure you read what I wrote. If I take what seems to be your objection at face value, then in fact there is arable land, farming can be learned (it’s done in just about every inhabited part of the world), and even just hunting and gathering in public parks would support my point: that without support of the unworking, labor wouldn’t be idle. It would be preoccupied with low-productivity extraction of sustenance from the environment. Scarcity is not a right-wing myth.
What people like Daniel are really saying is, Go away!
Well, Daniel, this is Don’s blog, and I have a better idea.
You go away.
Who am I supposed to be saying “go away” to? I think you’re having flashbacks to other blogs you have a history with.
Daniel,
Don welcomed you to his blog, and you thanked him by telling him to go somewhere else, in fact, to the dead end wasteland of some so called scholarly journal. Well, why don’t you go there? This is Don’s blog. And you’re virtually throwing him out, and crying innocence.
You waste so much of our time on nonsense.
Is that really what you want to be about?
Throwing him out? You’re not making any sense anymore.
Although I obviously do not share Daniel Kuehn’s admiration for Keynesian economics, I don’t believe that he’s either hijacked this thread or is throwing me out of my own blog. One of very reasons that Russ and I delete only spam and vulgarity-filled comments is that we are proud to provide a forum for vigorous debate. One of the trade-offs in doing so is that many comments are absurd (I’m thinking of the rantings of the oddly and appropriately named Mao-Dung) and many are the products of brains that know so little about economics that they think they know something deep about it, in the same way that a jungle medicine man is convinced that the secret to good medical care lies in the dances and chants that he learned from dancing and chanting tribal elders (I’m thinking here of the incoherent proclamations that we receive from Muirgeo).
Daniel, though, is informed, fair-minded, open-minded. I seldom agree with him, it is true. But he typically causes me to think. And the fact that he (probably more than he realizes) is guilty of what each of us is guilty of – namely, having strong priors and not abandoning them the moment we encounter a fact or argument that seems to contradict them – means only that he’s human. No more than a tiny slice of one’s worldview – the compass of one’s knowledge and wisdom and presumptions – can be up for reevaluation at any moment. (There are tipping points, of course – when accumulation of enough evidence and argument and wisdom – sometimes cause seemingly rapid, tectonic shifts in one’s worldview. But those events are relatively rare.)
“Having strong priors and not abandoning them the moment we encounter a fact or argument that seems to contradict them”
Part of why I think people do this is that contradictory facts are considerably harder to come by than a lot of people suppose. The economy is extremely complex, and there are usually multiple valid explanations of the same phenomenon. I think both Keynesians and Austrians were mutually shocked to see a huge revival in their respective schools of thought following the crash. It fits the Keynesians story so damn well, you’d think people would just give up on the Austrian school once and for all! But what people need to keep in mind is that confirming one view is not the same as contradicting another.
Anyway – I think theory validation and invalidation in any science is a lot more iterative and cumulative than some people like to think. In the end what happens is that a whole framework for answering questions is judged on its ability to answer a whole suite of questions, and compared to another. Because the likelihood of a decisive arbitration on a given question is highly unlikely. Ptolemy could explain orbits as well as Copernicus. No considerable advance in predictive power occurred until Kepler and then Newton came along, and Copernicus became canonical because the system as a whole fit a wide swath observations better, not because of any single observation. On any given observation, Ptolemy really didn’t do all that bad.
DK,
Ah…I see you watched my video link. To me, Ptolemy’s view is the Keynesian view in that it confirms a narrow POV and “looks correct” from that POV….but is ultimately wrong because it falls to see the reality that CREATES what he sees. This makes Ptolemy’s concentric circles of limited use in that it can only track one dimension of what is happening (planet movement from an earthly perspective). But, as we all know, dwelling on that movement is not key to understanding what is happening. Likewise, Keynesians dwell on demand, which is analogous to the sterile movement of planets as we see it from earth in that demand is there (like the movement) but it’s part of and subordinate to a large picture, which is complex market processes built on varied human action from multiple actors (analogous to the true spacial relationship of the solar system). And just as strange concentric circles seem correct from a limited POV but fail to capture the true essence of what is happening in the solar system, demand-based analysis seems correct but fails to capture the essence of what is really happening in the economy.
BTW, you say the crash fits the Keynesian Story so damned well. I’m not quite sure how that is. Perhaps it does in some manner of speaking. Maybe you could explain. I can see the Keynesian View being affirmed by the lack of demand FOLLOWING the crash but I don’t see the crash itself being a confirmation. Then again, to me, even that affirmation is simply similar to Ptolemy’s affirmation of his view of the planets’ movements in that what he sees confirms what he came up with but the cause of what he sees is totally wrong or nonexistent and misunderstood.
But then you say this as a lead-in to the idea of basically saying that Austrians might have had to give up on their school of thought because of this story affirmation…but didn’t since changing views isn’t easy. Well, it’s funny but the crash also fits the Austrian View and the lack of recovery also fits the Austrian View. So we get an explanation of the crash, recession and lack of recovery. AND, we were getting this explanation well before it happened.
John V –
I had to laugh when I saw you post that because when I had seen it when it was first aired my thought was “wow – Ptolemy = Classical economics”.
To see you completely reverse it was ironic, and in my view a little weak. But in the end, just funny to see you take it in a completely different direction.
Yes – your recent posting of it was what made it fresh in my mind.
re: “To me, Ptolemy’s view is the Keynesian view in that it confirms a narrow POV and “looks correct” from that”
You think Keynes is narrower than the alternatives???
DK,
Explain how that works in reverse. I actually explained how the analogy works from my view.
Really, Copernicus might be like Malthus and Keynes is like Newton. Classical economics takes a concept like Say’s Law/geocentrism that they invest great deal of faith in – ultimately because it makes for a pretty story where everything is just-so and works out for our benefit. The problem is, those assumptions require bending over backwards to explain observations. Ptolemy had to assume some very strange, unnecessarily complicated orbits to preserve geocentrism. Classical economists and others in the Say’s Law vein (explicitly or implicitly) similarly had to come up with unnecessarily complicated explanations for unemployment and the business cycle. Lots of deus ex machina were invoked (the Austrians were particularly good at this).
Malthus is much like Copernicus. He didn’t get everything right, but he said “you know, if you drop this silly assumption you all invest so much in it’s not as hard to explain as it is when you try to keep that assumption”. Keynes went one step further (like Newton), and demonstrated that with a few very basic functional relations the whole system would work very easily.
It’s not the first time Keynes has been compared to Newton.
He’s also been compared to Einstein, for other reasons (http://prospect.org/cs/articles?article=keynes_einstein_and_scientific_revolution), and I think there are some merits to that. Keynes was the biggest revolution in economic science since Adam Smith. It’s not surprising there are parallels to other scientific revolutions.
DK,
“Ptolemy had to assume some very strange, unnecessarily complicated orbits to preserve geocentrism. Classical economists and others in the Say’s Law vein (explicitly or implicitly) similarly had to come up with unnecessarily complicated explanations for unemployment and the business cycle. Lots of deus ex machina were invoked (the Austrians were particularly good at this).”
Ah, so it’s a problem of unnecessary complexity in explaining unemployment and the business cycle. Why? Because demand-based analysis is so neat and simple? And the Austrian view of how market processes work starting from single human behavior is just so needlessly tedious and messy?…and, by extension, ultimately distractingly wrong in terms of seeing the true essence of what is really happening?
I’m not buying it. Market process analysis is not unneeded and not needlessly complex. It is what is truly happening. Ideas like heterogeneous capital and patterns of production and how they undermine simplistic aggregates and subordinate ideas like demand are devastating to simplistic Keynesian frames. And it demonstrates why stimulus spending as a cure for recessions is a joke. Like Ptolemy’s construct, demand tells you something that you are looking for after the fact but it fails to tell WHAT IS ACTUALLY HAPPENING because it is NOT the proper perspective.
I think your view of this “needless complexity” and the excuse it provides reflects the simplistic view of Keynesian thought as an explanatory frame of reference for understanding how the economy works.
I see this reaction when Keynesians scoff at critics of stimulus who bring up heterogeneity, capital structure and patterns of production and legos as reasons to oppose stimulus and its methodology…as if the precise and intricate “unknowable” is not a good reason to think the methodology behind stimulus is based on overly simplistic and blunt thinking. Huh? Well, it IS. This is clear in the response…and your response is no different.
You misunderstand me, John V. I’ve never had any problems at all with heterogeneous capital or the market process as described by Austrians (which I really don’t see as conflicting with more traditional neoclassical models… it’s more poetic, perhaps richer, but less utilitarian). The Austrians weren’t the first to point this out, they won’t be the last, and it’s fundamentally sound.
What I’m saying is that you have to invoke some external disturbance like a government that messes up or like a shift in preferences to get a downturn in the classical world. The Keynesian framework identifies how downturns follow naturally from a monetary economy.
Besides for being Socialists?
Well Einstein was, but Keynes obviously wasn’t.
The main commonality was the goofy mustaches, but the article makes a few other points as well.
DK,
“You misunderstand me…”
No. I don’t. First of all, I’m speaking mainly about the demand-based analysis and the prescriptions that come from it. Let’s keep that in mind.
Secondly, I am simply comparing the Keynesian analytical mindset of looking at demand-based ideas to the Austrian mindset of looking at the market process. I understand that there are other facets of it but I’m talking about the analysis at its foundations. The “abundance” idea that Don was referring to in the OP is based on demand. Prescriptions of stimulus is based on demand and so on. The idea that there’s stuff to be made and no demand….ergo….”we need more demand” is silly. That’s like saying someone with a fever is sick because he’s hot…ergo…we need to lower his body temperature with ice. Whatever is really wrong is CAUSING the high temperature. Keynesian econ doesn’t go into that analogous area because it’s “focused on temperature” so to speak. OR, a room is cold because the thermometer is low….ergo…put a match under it and the temp will rise. ??? The reasons could be many in each example but such superficial thinking about temperature is wrong-headed. Sure, it may tell you something accurate or useful but it’s no basis for an analytical framework. THAT’S my issue.
“I’ve never had any problems at all with heterogeneous capital or the market process as described by Austrians (which I really don’t see as conflicting with more traditional neoclassical models… it’s more poetic, perhaps richer, but less utilitarian). The Austrians weren’t the first to point this out, they won’t be the last, and it’s fundamentally sound”
Firstly, I am not talking about the neo-classical models. But since you mention “conflict”, what I am saying is that such ideas make the Keynesian view insufficient. Saying that these ideas about heterogeneity and the like are fundamentally sound is a huge step in the direction of making the Keynesian mindset inadequate and wrong…though it may seem to “work” under certain applications…like Ptolemy’s model. I don’t see how one can square the pandora’s box which is opened by heterogeneity and the intricate patterns of production therefrom and then say that Keynesian analysis “works” on a fundamental level.
“The Keynesian framework identifies how downturns follow naturally from a monetary economy.”
But does it? How can it “correctly” identify these things if the analysis it uses can’t account for the aspects we describe about capital and patterns of production above in a sound fashion. Same for the prescriptions. That’s like saying Ptolemy “correctly” mapped the path of the planets. Yes he did in a manner of speaking…but not really because the fundamental principles, as the man in the video said, are not correct. Ptolemy could never tell you anything beyond what his geo-centric map allowed him to. He couldn’t tell relationships between other planets or distances. And there’s so much that Keynesian econ can’t even begin to explain that should at least be accounted for.
BTW, to suggest that Austrian-minded people deny problems and failures in markets is wrong.
Can we go back to arguing about the robot-dominated future?
Another thread hijacked by Daniel.
Cause I get this crap a lot it’s worth noting I didn’t comment until almost three quarters of the way through the thread and I honestly didn’t expect “you should publish tihs” to get people worked up – and when it did I’ve really just been saying “no really – you should publish this”.
That can’t be that bad.
This is a great argument against the Keynesian view.
It seems very plausible to me that employees of a company would believe in the Keynesian view if they didn’t think past casual hallway conversations and statements made by their CEO during their company’s all-hands meetings.
Here these employees are ready to make products and deliver service, but customers just aren’t buying a whole lot. It’s difficult for these employees to admit that their products are average. It’s much easier to say in casual conversation that business is bad because of that outside influence, (consumers just aren’t buying or the economy is bad). They tell themselves that business will pick up when the economy picks up. Their CEO would never say at an all-hands meeting: “The company is performing at an average level relative to our competitors because our products are average.” He’s much more likely to imply that customers are on the verge of putting in a big order, but the economy is bad, so the order is being put off.
Then employees listen to politicians which reinforce these ideas. Politicians say, “The economy is the reason why your company isn’t selling products.”
Politicians would never say: “Your company is doing average because your company’s products are average.”
Maybe it’s just me, but I think people tend not to want to accept responsibility for their actions when things are just average or less than average. It’s much easier to blame others.
I’ll be honest, I blame others more than I want to. I even blame Dr. Boudreaux sometimes for not doing enough to create more freedom for me. Part of me thinks, “He’s not doing his job as well as he could be. If only he could innovate and get through to more people.”
I have to stop and remind myself that Dr. Boudreaux is not here to save me and change the world for me. I don’t pay him anything directly. He owes me nothing.
In summary, Keynesians tend to blame others when outcomes are average or less than average. I do the same thing, except I blame the government. Maybe I should stop blaming and do something about it.
I believe it was David Friedman that said:
Ask not what the government can do for you.
Ask what the government is doing to you.
I pretty much know what the government is doing to me. I believe it’s time to move on to the next step. Stop blaming.
I have but one issue to take with this essay. I am a “poetry professor”, and over on my blog I have been reading through and discussing Keynesianism. I have come to the same conclusions you have. Also, I was introduced to Austrian economics by a poetry professor — Frederick Turner — so don’t be so quick to say we poetry professors have the level of economics education as Keynes!
Nobody would accuse you of having the level of economics education as Keynes, Troy
It would be better to say that the keynesian theory is about of aboundomics instead of economics…
To extend what Scott G said. I think that the Keynes/big government/populist world view is a natural one. Meaning that it is in human nature to want to accuse amorphous forces, (fat cats, big oil) of sabotaging the economy. And to want to “fix” it using the power of government. Even though all experience shows that government does not fix anything in economic terms but makes things worse.
Politicians are of course not much smarter than the average person, but much more shrewed in their knowledge of human nature and how to play it.
That is why there will always be an overabundance of populist politicians and never very many rational ones.
The Keynesian view is not an uneducated, non-economist view point. Saying it is will do nothing but make people think you’re calling them stupid and then they’ll stop listening to you. You even admit in this article that education doesn’t always turn one away from Keynesian.
The reason that the prevailing view by the “(wo)man-on-the-street” is Keyensian is that is what is “taught” in the K-12 schools, by the news media, and by the politicians. Teaching isn’t even the right word, it is more indoctrination as no actual thought is to be given to economics, just accept that the world is this way.
Breaking through this brainwashing requires careful reasoning. It won’t be accomplished if they think you’re calling them uneducated, stupid, or dumb (no matter how accurate the description might be).