The May Freeman

by Don Boudreaux on April 21, 2011

in Economics

The May issue of The Freeman is stuffed full of good stuff – including three different essays by three different GMU Econ professors (Pete Leeson on the law merchant; Walter Williams on poverty; and me on Keynesianism).

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{ 14 comments }

indianajim April 21, 2011 at 5:28 pm

Don,

I like your term “naive Keynesianism” better than the term “vulgar Keynesianism” which I have been wont to employ. The reason I like it? Because it more aptly fits the project of disabusing students of the naive notions stemming from “The General Theory” that have so widely been popularized. Using the term “naive Keynesianism” sets up more straightforwardly (than the term “vulgar Keynesianism”) its unimaginativeness.

vikingvista April 24, 2011 at 1:59 pm

Both terms are redundant.

Slappy McFee April 21, 2011 at 5:30 pm

Just read your article:
1) I would like to apologize for my abuse-of-hypens
2) From a Keynes prospective, why isn’t it assumed that 70% consumption is too low? Shouldn’t they be pushing for me to spend every last dollar I get, as soon as I get it, regardless of on what? And how do they feel about the forced savings that is the tax refund every spring? Isn’t that just delayed consumption that could be helping the economy?

Daniel Kuehn April 22, 2011 at 5:32 am

From a Keynesian perspective it really doesn’t matter what the consumption/investment split is, and the primary concern is a fall in investment, not consumption (consumption falls as a result of the multiplier, but as secondary effect).

Keynesians don’t care if you save. They care if investment demand is commensurate with it.

I found that article very confusing. I’m not sure what’s especially “Keynesian” about the mistake.

jjoxman April 22, 2011 at 9:22 am

“Keynesians don’t care if you save.”

Nonsense! Keynes cared greatly about savings; he was against it. Paradox of thrift, hello? Furthermore, the way Keynes defined it, savings is equal to investment.

Don was especially careful that the article was addressed to the journalists, other media, and politicians who subscribe to “naive Keynesianism.” Don’s view of naive Keynesianism is consistent with what I read in magazines, newspapers (even the WSJ!) etc.

Pingry April 21, 2011 at 5:47 pm

Don writes:

“Naive Keynesians commit too many errors even to list in the space allotted to me in this column.”

Fair enough, you have word limits, and so maybe you can list some of these “errors” at Cafe Hayek, but the one “error” that you accuse Keynesians of (Ummm…you should realize that most economists are not Keynesians…this isn’t the 1950′s)

“Perhaps foremost among these errors is their mistaken presumption that the practical imagination and initiative of entrepreneurs is as narrow and as anemic as their own in fact is.”

First, I don’t know of any serious New Keynesian economists who claim this. No, entrepreneurs are not perfect, but economists today, at least the good ones who do solid research and publish in respected journals, do not believe that entrepreneurs are stupid or lack imagination.

“If it were true that entrepreneurs were so dull that none of them could ever figure out how to employ a greater supply of saved resources in ways that improve the operational efficiency of a factory, increase the quality of a consumer good, and enhance worker training so that more will be produced in the future when those higher retirement savings are drawn down, then perhaps increased savings would always spell economic trouble.”

It’s not an issue of entrepreneurs unable to find creative uses to mobilize increased saving and resources. They have all kinds of ways, but they do not mobilize these idle savings and resources as optimally as they should because there is less demand.

This is the same problem that we keep trying to inform you and Robert Higgs about. It’s all about poor sales because of insufficient aggregate demand.

If you want to take the position that the pattern of economic activity has changed, then fine. But also realize that for any pattern of economic activity, when the is a reduction on aggregate demand, there will be idle resources.

This is ketchup economics as I have said before. If a 2quart bottle of ketchup costs twice as much as a 1quart bottle, this says nothing about the overall demand for ketchup which may have declined.

I don’t care if entrepreneurs are as smart as Einstein, Newton and Keynes combined, if the demand for their output has declined, then they will not make use of the saving and resources.

–Pingry

jjoxman April 21, 2011 at 6:09 pm

Pingry, you say:

“This is the same problem that we keep trying to inform you and Robert Higgs about. It’s all about poor sales because of insufficient aggregate demand.”

But whose sales are poor? PCE is at an all time high, as are corporate profits. It is investment that remains low. Appealing broadly to AD papers over this important fact.

Sandre April 21, 2011 at 8:36 pm

Don’t confuse Pingry with facts.

Methinks1776 April 21, 2011 at 10:22 pm

JJoxman, why do you insist on interrupting with relevant facts Pingry’s heroic attempts to drill basic Ketchup economics into Boudreaux’s and Higgs’ unyielding skulls?

Pingry also says: “They have all kinds of ways, but they do not mobilize these idle savings and resources as optimally as they should because there is less demand.”

I’m still contemplating this bit of condiment. Seems that Ketchupians view not mobilizing resources in pursuit of losses as suboptimal. This basically flies in the face of everything I learned in both skool and practice.

indianajim April 21, 2011 at 11:29 pm

Pingry, like most committed ketchup Keynesians either have not heard of or have under-appreciated Roger Garrison’s eloquence in his discussion of reduced current consumption simply implying that people are SAVING UP FOR STUFF (SUFS).
Re-allocations of land, labor, capital, etc. and entrepreneurial creations of ever changing products, services, and forms of capital (physical and human) in response to simultaneous shifts in demands & in the future (SAVING UP FOR STUFF) are not reducible to closed form mathematical solutions. Don’s way of saying this is that naive Keynesians are unimaginative. Isn’t this because they have made themselves slaves to tractable mathematical models that are antithetical to key drivers of human actions?

vikingvista April 24, 2011 at 2:03 pm

That you can think about it, is enough for an illustrative model to be developed. Obtaining data for the model parameters might be a problem. But that is no excuse for the keynesiac modus operandi of excluding essential features from their models.

jjoxman April 22, 2011 at 10:35 am

Sorry, my bad. I have this thing about getting the story straight; I forgot these days it’s all about the politically correct storyline.

Seth April 22, 2011 at 11:27 am

Keynesian economics in one sentence:

We’re not sure why you’re not spending your money, but we don’t like it (it’s not ‘optimal’), so we’re going to spend it for you.

vikingvista April 24, 2011 at 2:05 pm

Or…

We’re not sure why you’re going to spend your money later rather than now, but we don’t like it, so we’re going to spend it for you now.

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