Keynes and central planning

by Russ Roberts on May 1, 2011

in Music, Uncategorized

Barkley Rosser at EconoSpeak says John Papola and I have accused Keynes of having “a central plan” in our rap video. After saying some nice things about the video, he says:

However, I do find it disturbing that increasingly Austrians and some others have taken to charging Keynes with having supported “central planning,” as indeed done in this video. Is this correct? I think that the answer is largely “no,” with it certainly being that answer if one means by that command central planning of the Soviet type that Hayek criticized in his Road to Serfdom (which Keynes praised, btw, when it first came out).

He then discusses whether Keynes’s writings offer any support to the charge. Keynes did talk about the virtues of the “socialisation of investment.” Rosser concludes:

One can argue again here that Keynes is setting himself up for some sort of impossible contradiction, and Hayek may well have argued that such control of investment would lead to his road to serfdom slippery slope. However, it is clear from later passages that what Keynes had in mind was ultimately the control of the aggregate of investment rather than of its specific forms or details.

These almost certainly provide the strongest evidence for Keynes supposedly supporting there being a “central plan.” But it looks at most, putting the two together, like one that involves lots of provision of information and data along with some sort of control of aggregate investment, while leaving most of the decisions up to “private initiative.” This hardly constitutes a “central plan,” and certainly not one of the sort that the actually existing Hayek criticized. The fictional one in the video should have spoken more carefully.

Brad DeLong agrees and says Keynes did not believe in central planning.

Paul Krugman doesn’t even want to get in on the debate–he calls it “truly stupid.”

There’s only one problem with all this and that’s that the accusation against us is something of a straw man. Here’s the line that Rosser is referring to, but in context:

HAYEK
Creating employment’s a straightforward craft
When the nation’s at war, and there’s a draft
If every worker was staffed in the army and fleet
We’d have full employment and nothing to eat

REFRAIN

HAYEK
Jobs are a means, not the ends in themselves
People work to live better, to put food on the shelves
Real growth means production of what people demand
That’s entrepreneurship not your central plan

Hayek isn’t saying Keynes is a socialist or wants to centrally plan the entire economy. He is singing about Keynes’s plan to create jobs via government spending. Surely having the government spend, say, $800 billion in stimulus is a central plan of sorts. Maybe we should have said “centralized plan” but it wouldn’t scan as well.

Tyler Cowen comes to our defense. He asks if Keynes favored central planning:

Barkley Rosser and Brad DeLong say no, but it depends on definition and context. Barkley tries to talk his way out of it, but Keynes in the General Theory did advocate “a somewhat comprehensive socialisation of investment.”  “somewhat” — that’s my kind of weasel word!  In any case this was not the same as classical central planning circa 1920, but in a rap video I consider that acceptable license.  By my count “central plan” comes up once in a ten-minute video and most importantly Keynes does not accept the characterization but rather responds that the debate is about spending.  The video is not suggesting that each and every rapped point is true at face value, and if the two characters seem to debate past one another that too reflects the reality at the time.

He then says:

Also consider another piece of evidence, namely the Keynes-approved preface to the German-language (uh-oh) edition of the General Theory:

“Nevertheless the theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of the production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire.”

Read the rest of Tyler’s post. He cuts Keynes some slack but also adds some tension back to the rope.

I’m not going to weigh in here on precisely where Keynes sits on the central planning meter on a scale of 1-100. Or where his policies might lead. That’s another questions. My point here is our lyrics. Are they fair to the views of Keynes and Hayek? I don’t think John Papola and I accused Keynes of being a central planner or a socialist.

Here is the refrain of the Fight of the Century. It is heard six times in the video:

Which way should we choose?
more bottom up or more top down
…the fight continues…
Keynes and Hayek’s second round

it’s time to weigh in…
more from the top or from the ground
…lets listen to the greats
Keynes and Hayek throwing down

Keynes’s roadmap for recovery and prosperity is more top down. Hayek’s is more bottom up. I think that’s a fair assessment. Paul Krugman is not a socialist. Neither is Brad DeLong. Both, however, want a lot more top down control or steering of the economy than John Papola and I want. So in that sense, I think the lyrics are fair to Keynes and Hayek and their modern-day fans.

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Methinks1776 May 1, 2011 at 10:27 pm

Left-leaning economists are all puffed up with rage about the charge that Keynes believed in central planning. They defend Keynes by saying that he did not favour a command and control economy. That’s true. But, that doesn’t mean that Keynes didn’t favour central planning.

Just because Keynes did not favour central planning down to the number of nails and shoestrings produced does not mean that he didn’t favour central plans. The entire economy needn’t be centrally planned for central planning to exist.

John V May 1, 2011 at 10:39 pm

Yes.

I really don’t see the problem. Relative to Hayek, Keynes had more faith in centrally planning to help steer the economy. This entire idea is antithetical to the Hayekian view of the economy.

Where’s the controversy? They all know this to be true.

There isn’t any. And that part of the problem for them. Why deny it? It’s just a natural extension of the Keynesian view.

Saying Keynes isn’t a socialist is too obvious to be worth saying and is obviously not what anyone is saying.

Methinks1776 May 2, 2011 at 12:10 am

The controversy is that central planning has earned a bad reputation. Any association with it discredits, so supporters of central planning must now completely divorce Keynes from Keynes. Tough job, separating words from their meaning.

WhiskeyJim May 3, 2011 at 4:49 pm

Ok. I’ll bite since many on this website keeping saying Keynes was not a socialist.

Keynes believed a committee can alter aggregate demand, and SHOULD DO SO. Think for a moment what that entails in terms of superstructure, and where that idea practically evolves.

This argument is like the popular one in the press regarding whether Obama is a socialist. Of course he is. In fact he is a more vehement proponent of socialism than Keynes ever was.

But it is entirely not a coincidence that he embraces Keynesian economics. It fits right in! In fact, it fits NO WHERE ELSE. You can not have an in-between policy as so many economists seem to be arguing when it comes to Keynes. There is no such thing.

vikingvista May 2, 2011 at 2:09 am

And communists take offense at being called “communists”.
And fascists take offense at being called “fascists”.
And socialists take offense at being called “socialists”.
And leftists take offense at being called “leftists”.
And liberals take offense at being called “liberals”.
Soon progressives one day will take offense at being called “progressives”.

Maybe if they would just change their indefensible beliefs, they wouldn’t have to keep changing their labels.

kyle8 May 2, 2011 at 7:15 am

Actually progressives started calling themselves liberals after Progressivism got a bad name. Then they resurrected that name after time had healed it.

The truth is that their policies don’t work, they cause more harm than good. They will always be unpopular, so they hide them and obfuscate. but they use them as either a cynical play for political power, or because it is a secular religion to them.

vikingvista May 2, 2011 at 3:17 pm

Okay. Progressives will one day AGAIN…

Randy May 2, 2011 at 10:32 am

Well said.

Dan May 4, 2011 at 1:22 am

As soon as their ‘label’ becomes an accepted perjorative, they will simply change again.

vidyohs May 2, 2011 at 9:20 am

I agree with the general consensus here. If a man advocates the spending of money by the government…….how far to we have to carry the logic before we come to the socialism?

John V May 1, 2011 at 10:30 pm

When you don’t like a general point and have nothing to say, it’s commonplace to start nit-picking and being pedantic. That’s what we see happening with the Keynesians

Dan May 4, 2011 at 1:25 am

There will always be an excuse for why the few planning for the many fell short. The answer will always be that further micromanaging is required rather than the more centralized planning failing till the point of full communism and death and destruction.

Marty Steinberg May 1, 2011 at 10:31 pm

If keynesiacs are not able to bear the fact that their policy positions will lead to painful socialism then they need to get out of the dialogue. otherwise they should just come out of their collective closets.

WhiskeyJim May 1, 2011 at 10:36 pm

David Frum goes even further than the others mentioned in defending Keynes.

Keynes won the rap battle

WhiskeyJim May 1, 2011 at 10:49 pm

I do believe that Keynes would be appalled at the amounts of the stimulus, not to mention continual government deficits that bankrupt the country in the long run.

But isn’t that what’s wrong with a great many theories? Their practical implementation leads to ruin.

Ultimately, that is the issue Frum and others must face; they believe one can separate an idea from its execution. Just like the idea of socialism, which is a pretty little tautology if one does not look too closely, and a ruinous bankruptcy of economics and morality when implemented.

vikingvista May 2, 2011 at 2:18 am

“the issue Frum and others must face; they believe one can separate an idea from its execution.”

Words of wisdom, Jim. A foggy window into the incompleteness and inaccuracy of an idea is created by its implementation. The more it is implemented, the more fog is wiped away. It is childish fantasy to continue to cling to an idea as it increasingly bears no resemblance to its reality. You can perhaps forgive that childishness in those who don’t gaze through the window, but what can you say about those who make a study of it?

kyle8 May 2, 2011 at 7:19 am

The problem is that these people are either interested in power, or they are true believers. The former cynically use socialism as a path to money and power, and the later are immune to facts as they are the equivalent to religious fanatics, much like Muirego.

Dan May 4, 2011 at 1:30 am

This is the question. Do they ( implementers not the followers) really believe, contrary to greater amounts of evidence, or is Keynes, socialism, third party do-gooder, etc.,…. Just tools to gain benefits and/or power?

WhiskeyJim May 2, 2011 at 2:30 pm

We laud the idea that unfettered pursuit of knowledge and theory is preferable to captured special interest. Arguably the soaring cost of education is the result, with ‘experiment’ untethered to reality often pursuing tired theories which long ago showed their warts in the real world.

We now have a top heavy university system doing mostly irrelevant research captured by the largest special interest in the world; large government bureaucracy.

Socialism, psychoanalysis, Keynesian stimulus, government run Ponzi schemes, the list goes on and on. Business would have given them up long ago as bad ideas. And certainly it would never allow economists without significant results in smaller actual pilots to assume responsibility of $15 trillion projects. Only politicians mimic that silly notion.

When paltry results require consensus to define success, you know the idea is paltry as well.

Dan May 4, 2011 at 1:26 am

Frum?

Anotherphil May 1, 2011 at 11:51 pm

David Frum has an appropriate surname, it would be perfect if a “p” was appended.

Methinks1776 May 2, 2011 at 2:45 am

Sloppy thinking.

“Some answer is better than no answer”?????? Not if it’s a worse answer than no answer. Also, since when is advocating letting many people experiment with various solutions rather than forcing them to submit to a few self-interestd politicians not an answer?

Justin P May 2, 2011 at 11:50 am

I think they would rather have a wrong diagnosis than no diagnosis. Unfortunately a wrong diagnosis can lead to death faster than if you had none, as the medication used will cause far more harm.

Methinks1776 May 1, 2011 at 10:36 pm

Keynes wrote to Hayek after reading “Road to Serfdom”: “You will not expect me to accept quite all the economic dicta in it….The line of argument you yourself take depends on the very doubtful assumption that planning is not more efficient. Quite likely, from the purely economic point of view, it is efficient.”

In another part of the letter, Keynes went on to say that he say no reason to pay the price of liberty for central plans at that moment. Are we to take that to mean that at some point, that price will be worth it? Who will decide. His disciple, Paul Samuelson (a man I don’t think anyone has accused of misreading Keynes), decided that the sacrifice of hundreds of millions of people at the alter of Soviet central planning was “worth it”.

vikingvista May 2, 2011 at 2:35 am

“Samuelson (a man I don’t think anyone has accused of misreading Keynes), decided that the sacrifice of hundreds of millions of people at the alter of Soviet central planning was “worth it”.”

Economists too frequently reserve their highest honors for those who defend the most blood-letting. Of course, a handful of economists I hold in high regard. But mostly it has been truly disgraceful discipline, both scientifically, and morally. One wonders if a rational discipline can ever be salvaged from its current pollution.

Daniel Kuehn May 1, 2011 at 10:45 pm

Everybody ought to read the German preface that Tyler mentions in its entirety. It’s actually a methodological case being made to the German Historical School – a quite similar methodological case to the one that Carl Menger and the earlier generation of Austrian economists made to Schmoller and others in the 1880s.

Keynes tries to catch the Historicists with honey where Menger and the “Methodenstreit” had more of a vinegar approach. The preface is an interesting read, and quite different – in context – from how it is usually presented.

Marty Steinberg May 1, 2011 at 10:53 pm

Daniel, you are right Keynes wasn’t recommending totalitarianism. He was just acknowledging that his prescriptions would work a lot better with totalitarianism, because the policies was only meant to lay out the red carpet for totalitarianism.

Daniel Kuehn May 1, 2011 at 10:59 pm

No, I don’t think he was saying that.

I’d suggest you read the preface if you haven’t yet. It’s not about policy at all.

Methinks1776 May 2, 2011 at 12:12 am

I read it and reread it and you’re reading new and uninteresting things into your convoluted interpretation.

Daniel Kuehn May 2, 2011 at 12:18 am

Well I’m curious to hear more details on why you think that, because I don’t have much to go on from this comment. He’s covering ground that should be fairly familiar to Austrians.

Methinks1776 May 2, 2011 at 12:54 am

From your analysis, I gather you’re terribly motivated in tying yourself into impressive intellectual knots, introducing unnecessary complexities and basically lying to yourself to confirm your bias.

I cannot begin to describe to you how disinterested I am in diving into that irrelevant mess with you.

Methinks1776 May 2, 2011 at 12:56 am

terribly motivated to tie yourself into knots, introduce….and lie….

I miss the edit button, but anyway….

John Papola May 2, 2011 at 12:05 am

That “context” regarding history of economic thought is simply irrelevant, Daniel. Keynes comment regarding the more easy adaptability of the GT to a totalitarian state than one with a large measure of laissez faire is true. If you believe that the total level of spending in the economy matters most of, having total command of the economy makes controlling that easier. The statement stands on its own and it’s not a pretty sight given the broader social and political events at the time.

Daniel Kuehn May 2, 2011 at 12:20 am

Yes – the statement does stand on its own as well. A theory that does not depend on assumptions about free markets will serve better as a scientific description of non-free markets than a theory that does.

Some people, though, try to read other things into it. This is why they broader context is nice, because it’s all methodological, and it’s all the issues that Menger covered with the German Historical School before.

Methinks1776 May 2, 2011 at 1:02 am

Your preemptive defense of lurking “other thing” is tilting at windmills. Keynes never advocated totalitarianism.

However, the fact that he himself acknowledges that his policies are best suited to a totalitarian regime should give us pause. In what direction will be headed if we adopt them?

Daniel Kuehn May 2, 2011 at 1:11 am

Who accused anyone of saying he advocated totalitarianism?

He does not say his policies are better adapted, he says his theory is better adapted.

This is why it’s important to read the whole thing. He’s talking theory: why the German’s rejected Ricardo and Marx, why they embraced Schmoller, and why Keynes thinks Schmoller was inadequate. It’s all about economic science and a formal theory that is capable of describing the operation of the economy regardless of whether it is a market economy or not.

Methinks1776 May 2, 2011 at 1:31 am

“Nevertheless the theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire.”

mea culpa. Theories.

Sandre May 2, 2011 at 1:53 am

What are his theory’s policy implications in the context of Keynes’s belief that lead him to write that passage in the preface to the German edition of the GT?

Daniel Kuehn May 2, 2011 at 2:07 am

Sandre -
So the policy implication is to lower interest rates and implement public works and expansionary fiscal policy. Hitler and Roosevelt both demonstrated that that’s conceivable in a fascist state or a liberal democracy. The policy itself doesn’t have that much ideological content. But the real key point is tha the THEORY is generalizable to a broader range of circumstances.

Methinks1776 May 2, 2011 at 2:23 am

So the policy implication is to lower interest rates and implement public works and expansionary fiscal policy.

Otherwise known as “central planning”.

Hitler and Roosevelt both demonstrated that that’s conceivable in a fascist state or a liberal democracy.

Yes, with Roosevelt acting more like Hitler and less than a president of the United States who happens to notice the constitution. Of course, Keynes admits that it is easier for Hitler. Effectively, Roosevelt agrees.

But the real key point is tha the THEORY is generalizable to a broader range of circumstances.

Sure – it’s just more easily adaptable to the circumstances of a totalitarian state. That he made other points as well doesn’t mean he didn’t make this one.

Frankly, I don’t know why you keep fighting this. It is no doubt easier for a totalitarian state to implement Keynes’ top-down solutions. Keynes was no friend of command economies and totalitarian regimes and he was no enemy of central planning.

Daniel Kuehn May 2, 2011 at 6:46 am

re: “Of course, Keynes admits that it is easier for Hitler”

And here I thought you had conceded the point that he wasn’t talking about policy.

Granted it WAS easier for Hitler, even if Keynes didn’t raise the issue. It’s easier for a dictator to implement any policy than it is for a president to implement the same policy. That’s sort of the point of being a dictator. But it has nothing to do with this conversation.

Sandre May 2, 2011 at 9:34 am

Hitler was elected and was extremely popular in his own country, and so was Roosevelt. In my opinion, that episode only shows why keynesianism fits like hand in glove with fascism.

John V May 2, 2011 at 10:00 am

DK,

You’re fighting battles that exist in your own paranoid imagination. The general premise that is obvious is in all this effort you are putting forth is neither important nor relevant to the video.

Methinks1776 May 2, 2011 at 10:05 am

And here I thought you had conceded the point that he wasn’t talking about policy.

I was writing from memory and writing quickly. You were correct – he said his theory is better adapted, not “policy”. Of course, GT is really not a policy piece. But, adapting theories is, in practice is the creation of policy.

Proving that Keynes was not averse to central planning does not hinge on the forward to the German version of GT. I’ve already pointed out what it has to do with this conversation. If you don’t choose to grasp it, there’s really nothing more I can say.

John Papola May 2, 2011 at 12:26 am

Don’t take my comment to mean that I think Keynes is a Totalitarian. I don’t.

Gary Gunnels May 2, 2011 at 5:58 pm

The German preface should have said “Don’t be totalitarians you idiots.” Instead we get a lot of discussion about his ideas might be implemented more easily in a totalitarian society.

Krishnan May 1, 2011 at 10:48 pm

Keynes believed in Central Planning only when the central planners were really smart (he says that in some documents and papers that were never published) – and Keynes also predicted the failure of the central planning by the Soviets and predicted the financial disaster of 2008 and about the soaring of the price of gold and of the Wall Street Crash in 1987 and …

(Sorry – this was someone rambling on about Keynes … it could have been the crazy Krugman who used to be an economist at one time in the distant past … or some other crazy)

Matt May 1, 2011 at 10:49 pm

Maybe the issue is with “plan.” Maybe they are arguing there is no plan. It’s centralized, but there is no plan. That would make more sense.

Chucklehead May 1, 2011 at 10:54 pm

Is throwing money out of a helicopter a plan?
How can a stimulus plan by the central government not be a central plan, comrade?

Matt May 1, 2011 at 10:56 pm

If that was directed at my post, I was being sarcastic and implying the incompetence of bureaucrats involved in the process.

Chucklehead May 2, 2011 at 12:49 am

Matt: it was directed at no one,although it is along the same vein. Your comment was valid and nuanced.
Why do people in this cafe seem so defensive? I an new in town and people seem to take umbrage at comments not directed at them. Isn’t this a market of ideas and not personalities?

Ken May 2, 2011 at 2:30 pm

Who’s defensive? I’m not defensive! What are you accusing me of?!

Methinks1776 May 2, 2011 at 3:33 pm

LOL!!

People are people :)

Sam Grove May 1, 2011 at 10:57 pm

Setting a target for and implementing aggregate spending means that some few with the authority must do the deciding. Obviously then, they will be at least near the center of power to carry out such a plan.

In the particular scenario referred to, it is accurately described as a “central plan”.

Of course, it is subject to interpretation.

Let’s look at a list of programs currently in effect in the U.S.

Agricultural marketing orders
Agricultural product controls
Interstate highway system
Ethanol subsidies
Federal welfare
Federal minimum wage
Department of Education
Departments of _____________
Medicare
Medicaid
Social Security
Tax code favoring employer supplied medical insurance
“Obamacare”
et cetera

Any sign of central planning?

Certainly

vikingvista May 2, 2011 at 2:40 am

Don’t you know, Sam, that if a person isn’t a totalitarian, he can’t possibly be a central planner?

kyle8 May 2, 2011 at 7:25 am

Not sure if I would include the interstate highway system in that list (although you are correct it is planned and centralized)

But, it, at least is a legitimate use of the power to “regulate interstate commerce”. The other things on that list are just examples of pure progressivism.

Sam Grove May 2, 2011 at 11:17 am
Harold Cockerill May 2, 2011 at 12:26 pm

Ike started the interstate highway system under the umbrella of “national defense”. He had driven across America as a young officer on assignment and knew a better system was needed and saw only the federal government as being able to get it done.

vikingvista May 2, 2011 at 3:22 pm

There are always things people would not do without government. It is the purpose of government to force people to do what they do not want to do.

Marcus May 1, 2011 at 11:10 pm

I made the point over on EconLog that this whole thing is nothing more than a distraction from the points raised in the video.

What does it matter whether Keynes the man believed in central planning or not? It doesn’t. That’s not what the video was about.

Harold Cockerill May 2, 2011 at 12:28 pm

Really. What Keynes meant is to me irrelevant, what matters is what they’ve justified in his name.

Anotherphil May 1, 2011 at 11:49 pm

Having done battle with Rosser on another site under a different pseudonym, be assured his certitude of his own rectitude is without equal, as is his contentiousness about insignificant petty details. He is a most unpleasant chap when one dares question his most cherished sophistries and shibboleths.

blink May 1, 2011 at 11:52 pm

I agree this debate is a red herring. I think the video does a wonderful job of explicating Hayek’s views using Keynes as a foil. I do not think this video quite fits the “battle” motif, however, simply because Hayek gets to throw so many more punches (he has almost 50% more lines than Keynes this time around). Though difficult to find fault with what the rappers say, Keynes supporters can legitimately claim their views receive too little air time in this video.

Anotherphil May 2, 2011 at 12:02 am

Then they can satisfy themselves with decades of college econ textbooks that treat Keynes as a prophet without a mention of Hayek.

I very much remember have Campbell McConnell’s book for basic Macro and Micro, if Hayek was included (too late to go retrieve a 30 year old book from the shelf now), it was a insignificant mention.

Ken May 2, 2011 at 9:27 am

Hey, the video didn’t even mention digging holes and filling them in, or burying jars of currency in disused mine shafts. Keynes’s supporters should oughta count their blessings.

Bill May 2, 2011 at 1:12 pm

“Hey, the video didn’t even mention digging holes and filling them in, or burying jars of currency in disused mine shafts.”

Sounds like Round 3 should send the chaps out on an archeological dig looking for cash.

Anotherphil May 1, 2011 at 11:58 pm

There’s a certain strange question not being asked. Why are the JMK acolytes rushing to defend him from the charge of central planning when so many folks claim his work as seminal and unassailable are so much at ease with it.

I would judge the tree by its fruit, even if Keynes wasn’t willing to give so much power to the state.

kyle8 May 2, 2011 at 7:30 am

Keynes General Theory says certain things that we would find fault in. But it was used as a launching point for a whole series of ever more socialist clap-trap.

So, in reality as I stated in a previous thread. Keynesianism has devolved into not much more than the idea that we can tax, spend, and borrow our way into prosperity. (see Krugman for any example)

Scott G May 2, 2011 at 12:00 am

A few thoughts are rolling through my mind regarding this post:

“Fight of the Century” is incredibly innovative in its method of teaching economics. I imagine that some academic economists will feel threatened by its impact, as it has a good chance of contributing to the elimination of some academic jobs. Politicians may even win votes eliminating some academic jobs in the years to come. Whoever feels threatened by this video is free to create their own video. In fact, if this video represents the future of teaching economics DeLong and others are behind.

Another thought I have, has to do with the perfection of one’s work. Hayek says: “I prefer imperfect knowledge that is true, to perfect knowledge that is false.” John and Russ feel confident that they’ve represented Keynes fairly, though they may have a small doubt or a little wish they could have done better. No work is ever perfect. In fact, as a master optician once taught me in one of my optical engineering classes: “Perfection is the enemy of the good.” This saying is incredibly important when fabricating an optic. It means that if you aim for perfection, you will eventually destroy your optic or never finish it. My father, also an engineer, says: “There comes a time in every program where you have to shoot the engineers and go into production.” “Fight of the Century” is not perfect, but it is incredibly effective in teaching economics and very accurate. John and Russ have to raise money and meet schedule deadlines and cost constraints. Had they tried to create a perfect video they would have failed. Instead they are wildly successful.

“Fight of the Century” is not only economics, it is art and entertainment. It is not an academic paper. It is one step close to customer-based economics catering to a very large audience with the potential of making profit. That audience doesn’t give a rats ass whether Keynes was a central planner. 386,000 views in four days for a video about economics is a success.

Keynesian enthusiasts not only have models that are tidy and neat, but also have “tidy-and-neat” behavioral traits that leak out. One example of this ego-driven-myopic-error-checking behavior is the meaning of the term central plan. I can see them now defending themselves in front of their families at the dinner table: “Keynes was not in favor of central planning – the video is inaccurate.”

Keynesian planning is centralized planning. It isn’t necessarily central planning.

I have John and Russ winning round two.

None of what I have said matters however. What matters is the scoreboard: 386K in four days. Go Hayek!

matter whether Russ and John

Sam Grove May 2, 2011 at 12:01 am

______________ Keynesian economics is predicated on a central bank and using that agency to manage economic functioning.

THAT is the plan.

vikingvista May 2, 2011 at 2:42 am

Are you suggesting that a government-instituted CENTRAL bank PLANNING to control a nation’s interest rates, employment, and inflation is somehow “central planning”?

kyle8 May 2, 2011 at 7:34 am

No waaaay dude!

DG Lesvic May 2, 2011 at 12:15 am

There is an even more interesting question than whether Keynes was a socialist or not, though, if he wasn’t, who was?

That is the question of whether he was an economist or not?

Doesn’t economics imply scarcity and the need to economize, and wasn’t Keynes, prescribing spending and even squandering for its own sake, an anti-economist?

And wasn’t his whole theory, at bottom, a theory of psychology rather than economics, dare I say, like Public Choice?

From the marvelous Political Economy, Public Policy and Monetary Economics/ Ludwig von Mises and the Austrian Tradition, by the greatest teacher of economics in the world today, Richard Ebeling:

“Why wouldn’t workers accept lower money wages to make themselves more attractive to rehire when market demand falls? Because, Keynes said, workers suffer from ‘money illusion.’ If prices for goods and services decrease because consumer demand is falling off, then workers could accept a lower money wage and be no worse off in real buying terms, (that is, if the cut in wages was on average no greater than the decrease in the average level of prices). But workers, Keynes argued, generally think only in terms of money wages, not real wages (that is, what their money income represents in real purchasing power on the market). Thus, workers often would rather accept unemployment than a cut in their money wage.”

In other words, they would rather starve than live even better at lower nominal wages. And that is the lynchpin of the inflationist, “demand management” theory that has driven public policy in Western Europe and America over the last 75 years.

And, it is as theory, not of economics, but psychology.

Brad Hutchings May 2, 2011 at 12:21 am

Just change the words from “cental plan” to “stupid plan”. #winning.

tkwelge May 2, 2011 at 12:39 am

I like how Krugman puts in his retarded two cents.

“. What Brad doesn’t note is that early on Hayek engages in the classic smear of Keynes’s line about the long run… (In the long run, we’re all dead.)

macroeconomics is grossly incomplete if it can’t say anything about short-run dynamics. It is not an assertion that the long run doesn’t matter.”

I don’t believe that anybody is really accusing Keynes of believing that the long run doesn’t matter. However, he clearly seems to believe that the long run will work itself out, so we need to focus on relieving pain in the short run. When Hayek (in the rap battle) announces that “the long run is here,” he means that we are living the results of earlier “short run” policies.

It isn’t that Keyne’s doesn’t care about the long run, it’s just that he clearly misunderstands just how damaging short run fixes can be to the long run economy.

Check out this link where Krugman clearly implies the long run quote to mean exactly what he accuses us to think it means:

http://krugman.blogs.nytimes.com/2008/10/18/we-are-all-dead/

Krugman clearly flip flops on what he believes to be Keynes meaning whenever it suits him. What a maroon.

tkwelge May 2, 2011 at 12:50 am

There’s this too:

http://krugman.blogs.nytimes.com/2010/06/25/in-the-long-run-we-are-still-all-dead/

This was less than a year ago. Why did Krugman suddenly reinterpret the long run quote now? What an opportunistic ass clown.

Methinks1776 May 2, 2011 at 3:06 am

Yeah….that thinking about the long run is really sloppy. After all, in the long run, you won’t be around to financially support your political allies with other people’s money. In the long run, you’ll be out of office. The long-run is not your problem – it’s other people’s problem.

WhiskeyJim May 2, 2011 at 10:32 pm

tkwelge, what an attractive post.

I appreciate your thoughts and sincerity and perspective on this website. Have done for a while.

vikingvista May 2, 2011 at 2:45 am

“all dead in the long run” is a non-concept, an empty phrase meant to provide the appearance of an answer without actually doing so. Another example is “animal spirits”.

kyle8 May 2, 2011 at 7:38 am

But that is no surprise, Krugman has absolutely zero credibility on anything because he is on record as saying completely contradictory things over and over again. He is all over the place and is either insane, or more probably, being rewarded for shilling for certain policies.

Ken May 2, 2011 at 9:33 am

Protagoras would be proud of his Padawan…

…wait, no he wouldn’t. A good sophist wouldn’t leave such an obvious trail of blood, guts, and feathers.

DG Lesvic May 2, 2011 at 12:41 am

“Ortega y Gasset wrote a famous essay on the expulsion of man from art; today we might well add a study on the expulsion of man from economics…the economic process is treated as an objective and mechanical movement…predicted by…mathematical and statistical methods. The economy takes on the appearance of a giant pumping engine, and…the science…a sort of engineering science. Equations proliferate, while the theory of prices falls into oblivion…When one tries to read an economic journal nowadays…one wonders whether one has not…picked up a journal of chemistry or hydraulics.” Wilhelm Röpke, 1958

Isn’t the denial of the price system, of economics altogether?

dsylexic May 2, 2011 at 3:03 am

its funny,if one tries to describe hayek to an extreme anarcho capitalist type,hayekians wouldnt be emabarrassed (i think) but you take the same approach to the left and keynesians cant seem to accept that their messiah is a monster

Robert Dell May 2, 2011 at 8:05 am

Hunter Lewis in his book, “Where Keynes Went Wrong” quotes Keynes from a 1939 interview with the New Statesman and Nation as wanting an “amalgam of private capitalism and state socialism.” This is from part 2 of Lewis’ book, titled “What Keynes Really Said” in chapter 6, titled, “Look to the State for Economic Leadership.”

O May 2, 2011 at 9:09 am

I would hate to be Keynes – having to be responsible for any stupid thing I said to a reporter over my life time. I agree with Krugman on this. Read Keynes instead if silly quotes from second hand sources taken out of context.

Methinks1776 May 2, 2011 at 10:20 am

Yeah, I hate being responsible for the things I do and say as well, but such is life.

O May 2, 2011 at 1:49 pm

I was just thinking that perhaps Keynes was human (and not divine like perhaps Methinks) so that if we look over his (or any human’s) life time and characterize his ideas by the most obscure quote we can find – then that will make him and perhaps most of us (not Methinks of course) look like idiots.

In most of science we try to abstract from outliers and focus on fundamental things – I think that is a reasonable principle. But of course, reading and trying to understand require so much more hard work than finding silly quotes.

vikingvista May 2, 2011 at 2:40 pm

There is nothing original with Keynes that furthers an understanding of economic reality, except perhaps in the analysis if his fallacies.

His impact on the study of persuasive sophistry, on the other hand…

Methinks1776 May 2, 2011 at 3:24 pm

Well, if we’re going to selectively ignore him when he repeats himself, perhaps we should ignore him altogether.

Dan May 2, 2011 at 11:54 pm

I understand what You are saying. But, if there is no retraction in one’s lifetime of a theory or comment than that person is rightfully saddled with their opinion. There is not necessarily opposition to a dead man, as if he were the one deceased OBL, but to the theory a group is promoting and subjecting everyone else to regardless of an objections.

The use of Keynes in our economy,today, is like the use of red wine. Current medicinal ideas are that a glass or two of red wine is helpful, even recommended, to assist the circulatory system, for good health. If, progressives were to implement wine like they wish to implement Keynes, as a tool, they would be recommending a box of wine per day.
Moreover, Keynes is being used as a means to an end. I don’t think many in politics care much for economic theories of dead men, but will role with whatever ideas will further the politicians own power and influence.

Sam Grove May 2, 2011 at 11:02 am

Keynes must’ve have said that accidentally.

Seth May 2, 2011 at 8:13 am

“Both, however, want a lot more top down control or steering of the economy than John Papola and I want.”

That’s the argument. Do you want more or less top down, where and why?

It’s easy to redirect the argument away from that to things like what the guys believed or didn’t believe 70 years ago. That is a red herring.

It would be nice if folks could just be straightforward in communicating their stance. Something like, “Yes, I do believe that in some cases a more centralized spending plan is better. I believe those are X and here’s why I think that…”

Marcus May 2, 2011 at 8:31 am

“Paul Krugman is not a socialist. Neither is Brad DeLong.”

Please Russ, you’re much too gracious, especially with regard to DeLong in this case. The man has a picture of Mao Tse-Tung in his response, implying that you’re accusing Keynes and his modern proponents of being communists. They are inventing that out of thin air. There is nothing in that video that suggests any such thing.

Yet, apparently, it’s OK for THEM to hyperbolize. Hypocrites.

The people quoting the German foreword are playing right into their hands. They’ve managed to distract the entire discussion over some pedantic nonsense.

Methinks1776 May 2, 2011 at 10:08 am

The forward to the German forward is one piece of evidence.

Suppose you were a doctor. Would you diagnose Tuberculosis based on the fact that the patient presented with a cough? Of course not – but, it is one piece of evidence.

Daniel Kuehn May 2, 2011 at 10:19 am

It’s supposed to be the ace in the hole, Methinks. All the other “evidence” is even weaker than that one. It’s a ridiculous claim, period.

Sandre May 2, 2011 at 10:42 am

Nonetheless, it remains a fact that Keynes, through a good part of his life, remained open and sympathetic to government management, regulation, control, and even forms of “planning” at various times in his life.

There was his (in)famous 1933 lecture on “National Self-Sufficiency,” in which he declared, “I sympathize . . . with those who would minimize rather than those who would maximize economic entanglement between nations. . . . Let goods be homespun whenever it is reasonably and conve¬niently possible; and above all, let finance be primarily national.”

And Keynes went on to say in this lecture:

“We each have our own fancy. Not believing we are saved already, we each would like to have a try at working out our salvation. We do not wish, therefore, to be at the mercy of world forces working out, or trying to work out, some uniform equilibrium according to the ideal principles of laissez-faire capitalism . . . We wish . . . to be our own masters, and to be free as we can make ourselves from the interference of the outside world.”

In his well-known letter to Hayek following the publication of “The Road to Serfdom,” Keynes has often been quoted expressing his sympathy for much of Hayek’s concerns and arguments about planning. But less frequently quoted in a later part of this letter, is what Keynes added:

“I should say that what we want is not no planning, or even less planning, indeed I should say that what we almost certainly want is more . . . Moderate planning will be safe if those carrying it out are rightly oriented in their own minds and hearts to the moral issue . . . Dangerous acts can be done safely in a community that thinks and feels rightly, which would be the way to hell if they were executed by those who think and feel wrongly.”

Thus, planning could be used and trusted to result in good things as long as the right people were in charge or were the advisers to those in power, people such as himself.

And as the Arthur Smithies also pointed out not long after Keynes’ death, “Keynes hoped for a world where monetary and fiscal policy, carried out by ‘wise men’ in authority, could ensure conditions of prosperity, equity, freedom, and possibly peace.”

As for “planning” more directly, Keynes did say in “The General Theory” that he expected the government would “take on ever greater responsibility for directly organizing investment.” In the future, said Keynes, “I conceive, therefore, that a somewhat comprehensive socialization of investment will prove the only means of securing an approximation to full employment.”

As the profitability of private investment dried up over time, society would see “the euthanasia of the rentier” and “the euthanasia of the cumulative oppressive power of the capitalist” to exploit for his own benefit the scarcity of capital. This “assisted suicide” of the interest-earning and capitalist groups would not require any revolutionary upheaval. No, “the necessary measures of socialization can be introduced gradually and without a break in the general traditions of the society.”

Yes, this was Keynes’ version of a form of “socialism with a human face.”

As for his forward to the German-language edition of “The General Theory,” which he penned in September and which appeared in the autumn of 1936, he addressed himself to the community of German economists. But by 1936, the only economists left in government, the universities, or the media in Germany were Nazi Economists, or the Nazi version of “fellow travelers” who could be trusted to always to be “working towards” the Fuhrer.

(Yes, there were those who after the Second World War became known as the German ORDO Liberals who helped lay the intellectual foundations for Germany’s postwar “economic miracle,” – Walter Eucken, Ludwig Erhard, et. al. – but they were not in any position to influence German economic policy, that is, those whom Keynes wished to address.)

In the forward to that German edition Keynes said he hoped that his theory would “meet with less resistance on the part of German readers than from English, when I submit to them a theory of employment and production as a whole,” because the German economists had long before rejected the teachings of both the classical economists and the more recent Austrian School of Economics. And, said Keynes, “if I can contribute a single morsel to a full meal prepared by German economists, particularly adjusted to German conditions, I will be satisfied.”

That is, he thinks the community of Nazi Economists will be more open to his “New Economics” precisely because they rejected Classical and Austrian Economics, and were in the tradition of the German Historical School. The implication that one could draw is that “if only” British economists had followed the same intellectual path these German economists had followed, there would be more acceptance of his ideas in his own country.

And, then, at the end of the forward Keynes said:

“The theory of aggregate production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state, than . . . under conditions of free competition and a large degree of laissez-faire. This is one of the reasons that justifies the fact that I call my theory a general theory . . . Although I have, after all, worked it out with a view to the conditions prevailing in the Anglo-Saxon countries where a large degree of laissez-faire still prevails, nevertheless it remains applicable to situations in which state management is more pronounced.”

Keynes clearly understood that the greater the degree of state control over any economy, the easier it would be for the government to manage the levers of monetary and fiscal policy to manipulate macroeconomic aggregates of “total output,” “total employment,” and “the general price and wage levels” for purposes of moving the overall economy into directions more to the economic policy analyst’s liking.

And under the Nazis, Germany had moved in the direction that made that transition to his type of New Economics that much easier. Here was a “tool-kit” for the Nazis Economists to better manage the Nazi planned economy that was formally introduced in 1936, with its “four-year plans.”

It is also worth recalling that in May of 1936, Keynes did a “review” of Beatrice and Sydney Webb’s pro-Stalin book, “A Soviet Civilization,” on the BBC. The transcript may be found in Keynes collected works. He said:

“Until recently events in Russia were moving too fast and the gap between professions and actual achievements was too wide for a proper account to be possible. But the new system is now sufficiently crystallized to be reviewed. The result is impressive. The Russian innovators have passed, not only from the revolutionary stage, but also from the doctrinaire stage. There is little or nothing left which bears any special relation to Marx and Marxism as distinguished from other systems of socialism.

“They are engaged in the vast administrative task of making a completely new set of social and economic institutions work smoothly and successfully over a territory so extensive that it covers one sixth of the land surface of the world. The largest scale empiricism and experimentalism which has ever been attempted by disinterested administrators is in operation. Meanwhile the Webb’s’ have enabled us to see the direction in which things appear to be moving and how far they have got . . .

“It leaves me with a strong desire and hope that we in this country may discover how to combine an unlimited readiness to experiment with changes in political and economic methods and institutions, whilst preserving traditionalism and a sort of careful conservatism, thrifty of everything which has human experience behind it, in every branch of feeling and of action.”

While opposed to Soviet dictatorship and oppression, Keynes had long had sympathy for their grand “experiment” in redesigning a society. After a visit to Soviet Russia in 1925, he wrote an essay on his impressions of what he saw. He explained:

“For me, brought up in a free air undarkened by the horrors of religion, with nothing to be afraid of, Red Russia holds too much which is detestable . . . I am not ready for a creed which does not care how much it destroys the liberty and security of daily life, which uses deliberately the weapons of persecution, destruction, and international strife . . . It is hard for an educated, decent, intelligent son of Western Europe to find his ideals here.”

Nonetheless, where Soviet Russia had an advantage over the West, Keynes argued, was in its almost religious revolutionary fervor, in its romanticism of the common working man, and its condemnation of moneymaking. Indeed, the Soviet attempt to stamp out the “money-making mentality” was, in Keynes’s mind, “a tremendous innovation.” Capitalist society, too, in Keynes’s view, had to find a moral foundation above self-interested “love of money.”

What Keynes considered Soviet Russia’s superiority over capitalist society, therefore, was its moral high ground in opposition to capitalist individualism. And he also believed that “any piece of useful economic technique” developed in Soviet Russia could easily be grafted onto a Western economy following his model of a New Liberalism “with equal or greater success” than in the Soviet Union.

This all does not make Keynes a “communist” or a “Nazi” or any other type of central planning totalitarian. And to suggest otherwise would be unfair and unjust to Keynes. Like many of the British liberals of the early decades of the 20th century, Keynes may have lost confidence or belief in laissez-faire economics, but he (like other British liberals of that time) held fast to their desire for and defense of civil liberties and democratic government. The latter was what separated them from the Nazis, and made Hitler the enemy of Western Civilization – which, indeed, he was.

But it remains the fact, that Keynes was open to experimenting with a wide variety of government forms of economic management and planning – depending on the circumstances and requirements – given that he considered that the laissez-faire, or a free market-based, alternative was neither workable nor desirable.

And for all the seeming changes in Keynes’ views over the years, this remained the only ideological and policy constant running through all his ideas and policy recommendations.

Richard Ebeling

more

Daniel, if Keynes’ German forward was an “outlier” in comparison to everything else he basically had written, I might agree with you.

But as I suggest in the quotes given in my comment, above, it is clear that Keynes virtually throughout the 1920s, 1930s and 1940s, was sympathetic, supportive, and a qualified endorser of the planning experiments of the interwar period.

And from his remarks in that letter that he wrote to Hayek after the appearance of “The Road to Serfdom,” which I quoted above, his main criticism was not the possibility of planning or its effectiveness in many instances in comparison to the free market. It was only a concern over its political consequences when in the hands of the “wrong” people. Thus, planning was economically possible and superior to the unregulated market, but was political suspect because of the potential for the abuse of power.

His sympathy for the possibility of planning was reinforced by his elitist attitude about the directing of society. In his two memoirs written in the late 1930s and published after his death, Keynes says at one point that,

“civilization was a thin and precarious crust erected by the personality and the will of a very few, and only maintained by rules and conventions skillfully put across and guilely preserved.”

And Roy Harrod, his friend and first biographer remarked that, “he was strongly imbued with . . . the idea that the government of Britain was and could continue to be in the hands of an intellectual aristocracy using the method of persuasion.”

Keynes may have believed that democratic “values” were essential to a free and liberal society, but at the same time, he clearly also believed that a stable and good society was dependent upon an “elect” who saw things beyond the passing passions of “animal spirits” and could guide the social order in the “right” direction.

That “civilization” was based upon and sustained by “the personality and the will of a very few, and only maintained by rules and conventions skillfully put across and guilely preserved,” as he said.

Thus, he had the philosophical beliefs and psychological attitude of a “planner.” We should not forget that in his Berlin lecture on “The End of Laissez-faire” in the mid-1920s, he even fluttered with eugenics and the designing of a better human race.

If not for the superior insight and long-sighted understanding of a “social good” by people like himself, it would be, he clearly thought, the end of “civilization.”

So while doctrinally it is true Keynes never specifically called for socialist central planning in either its Soviet or Nazi form, he was a philosophical and psychological “fellow traveler” who showed public sympathy and general support for the such experiments in social planning.

Richard Ebeling

Dan May 2, 2011 at 11:58 pm

Thus, planning could be used and trusted to result in good things as long as the right people were in charge or were the advisers to those in power, people such as himself.- Sandre

Indeed, this is the thoughts of theorizing Utopians. As Obama proclaimed, ” We are who we have been waiting for”.

Methinks1776 May 2, 2011 at 10:59 am

It’s supposed to be the ace in the hole, Methinks. All the other “evidence” is even weaker than that one. It’s a ridiculous claim, period.

You’re spewing total nonsense.

brod0056 May 2, 2011 at 10:06 am

I can see your point, but how can you not see the other sides. You didn’t call Keynes a central planner, just like Donald Trump didn’t call Obama not American.

Methinks1776 May 2, 2011 at 10:15 am

A retarded analogy.

indianajim May 2, 2011 at 11:20 am

You could have labeled it “non sequitur”, but I liked your “retarded analogy” much better!

Methinks1776 May 2, 2011 at 3:25 pm

I like the word “retarded” precisely because it gets directly to the point and it is now politically incorrect :)

vikingvista May 2, 2011 at 4:18 pm

I like the word “dipshit” for much the same reason.

Dan May 3, 2011 at 12:39 am

B&J………

Bob May 2, 2011 at 10:25 am

“If it walks like a duck and squawks like a duck then it must be a duck.” I have heard P. Obama say that his job would be much easier implementing his plans if he was leader of China. Thomas Friedman of the NY Times has expressed similar sentiments. We witnessed one of the most dramatic examples of central planning or top down mentality recently with the ramming down our throats of Obamacare. This was done against the wishes of a large majority American citizens. I’m not implying that they are marxists just meddling collectivist socialists who use Keyensian theory as their intellectual basis.

Marcus May 2, 2011 at 10:33 am

I think you’re mixing issues. Keynes’ GT doesn’t have anything to do with Obamacare, which was rationalized on entirely different grounds.

If they argued that we needed Obamacare to spend money to create jobs to boost aggregate demand, then there’d be a relationship.

Liberty 1 May 2, 2011 at 10:36 am

Keynesians are very used to framing the argument and they can’t do that in the video, so they nit-pick and say the representation is false.
Hayek’s counter points in the video are too effective, and are not heard by the average citizen. The effectiveness of those points really really bugs them.
I read left wing blogs to see where they are coming from. What they preach to everyone who will listen is that Capitalism means corporations make the rules and corporations will make every rule to help themselves and hold the rest down.
The word/truth the left can’t allow to gain acceptance is, that the cronyism they see and despise is very often government run/sponsored.

Sam Grove May 2, 2011 at 11:15 am

…and that they merely wish to displace the rule by corporations with rule by the left.

They just can’t give up on the idea of “rule”.

Randy May 2, 2011 at 10:37 am

I’m thinking we should stop talking about Keynes and start talking about Obama and his ilk. Was Keynes a believer in central planning? Maybe. Is Obama a believer in central planning? Absolutely.

indianajim May 2, 2011 at 11:22 am

Good point. And are Obama, Biden, Pelosi, Reid et al. channeling naive Keynesianisms? Absolutely.

Sam Grove May 2, 2011 at 11:24 am

Collectivists are like decorator crabs, perpetually seeking to disguise their aims with the pretense of being something else, hence terms such as:

social justice
democratic socialism
progressivism
Communitarianism
It takes a village
liberalism

and so it goes.

Sam Grove May 2, 2011 at 11:28 am

While I can align with the desire to avoid rule by corporations, I don’t find that such a frightening boogey man as rule by collectivists.

Corporations number in the thousands and do compete with each other. It is those who seek to consolidate all power under one corporate agency that pose the greater threat to liberty.

Mao_Dung May 2, 2011 at 11:52 am

You are ruled by your poverty of spirit and imagination, if not by your actual poverty.

Sam Grove May 2, 2011 at 12:21 pm

Talking to the mirror again?

Mao_Dung May 2, 2011 at 11:40 am

“Jobs are a means, not the ends in themselves”

I’m not sure what that sentence “means.”

Most people spend a large fraction of their lives working usually because they have to to survive. I think the ends that you want working people to have are collecting capitalist rents. There are people who can live off their investments, but I’m not sure the percentage of population that can do that or can theoretically do that. I have trouble conceiving of a world where everyone is rich and no one has to work. I suppose in a robotic world it is conceivable, though not in our lifetime certainly. There is obviously a difference between living off your savings and living off capitalist rents.

I thought the #2 video was enjoyable, and if it generate discussion and debate, that is an even better outcome. Many people “worked” to make the production possible. Had those people been yachting around the world eating caviar and drinking champagne, Hayek 2nd round would never have been realized. The people waiting on them hand and foot wouldn’t have accomplished it either.

Sam Grove May 2, 2011 at 12:23 pm

Most people spend a large fraction of their lives working MEANS usually because they have to to survive. ENDS

Dan May 3, 2011 at 12:44 am

Many have been incentivized under the fallacy of govt caring for them after 60. so, for the past 50 yrs more Americans spent rather than saved.

Ken May 2, 2011 at 12:39 pm

Dung,

It means that work is the means to wealth. Work isn’t the end, but rather wealth is. In the context in the song, Hayek was referring to the fact that if all work consisted of building tanks and staffing weapons of war, we all starve since no one is producing food. Also, weapons of war, by definition, are used to destroy. Wealth has NEVER been created destroying things and killing people.

Similarly, Keynes has argued that the government should pay people to dig ditches and others to go fill those ditches. This is an example where a job is not the end, but Keynes seems to think so. This job doesn’t produce wealth. This type of idiocy ties up resources (human labor) that could be used to actually do something productive.

Please define “capitalist rents”.

“I have trouble conceiving of a world where everyone is rich and no one has to work. I suppose in a robotic world it is conceivable, though not in our lifetime certainly.”

You can’t imagine it, but in the very next sentence you give an example. And why “certainly” not in our lifetime? Are you unaware of the massive increases in technological know how in just the last 20 years? How much of our wealth today is due to mechanization that used to be done by humans? We produce enough food in the world to feed everyone, and not just feed them, but to allow all to be gluttons. How else would you explain the fact that 200 years ago it took 98 people to feed 100, but now it takes not even 2 to feed 100?

To live like people did 200 years ago requires pretty much not effort whatsoever. 200 years ago, though, people worked longer and harder than we do today.

Regards,
Ken

Mao_Dung May 2, 2011 at 12:59 pm

I’m simply amazed that a robot like you isn’t unemployed. What you do is replaceable by an obsolete TV tube. It’s just a matter of time before your boss wises up. You are have a tin ear, Tin Man.

Ken May 2, 2011 at 1:37 pm

Dung,

“What you do is replaceable by an obsolete TV tube.”

What do I do and how can an obsolete TV tube replace me?

“You are have a tin ear”

Is that like all your base are belong to us?

Regards,
Ken

Dan May 3, 2011 at 1:06 am

I am not on par with much of the level of discussion, here. But………

Funny how Marx spoke of mechanization destroying jobs and lives, while they actually yield some of the very thing he looked to create, more leisure.

Pretty simplified, I know. I am no fan of Marx. I cannot say I know his work as many of you do, but I do recall this info.

GP Hanner May 2, 2011 at 11:49 am

Didn’t Keynes recant the idea of deficit spending as a means of stimulating the economy after WWII was concluded? If I recall correctly, he concluded that a tax reduction would have worked better. Or maybe that was all just a dream.

Methinks1776 May 2, 2011 at 12:15 pm

Tax rate decreases were always in his repertoire – he just found them so unreliable. God forbid people should not spend every penny they didn’t pay to government. Savings is a tragedy.

kyle8 May 2, 2011 at 7:14 pm

he had that view earlier in his career. Initially you were supposed to increase aggregate demand through spending surpluses.

Of course that all changed when FDR and the British government asked him for advice. He then advocated borrowing, taxing, and spending, and not just spending for a purpose, but spending on anything at all. Even digging and filling holes was ok.

Martin Brock May 2, 2011 at 12:36 pm

In the interview with Hayek that Krugman links, Hayek never says that Keynes says that “the long run doesn’t matter”, so Krugman attributes a “smear” to Hayek that is actually Krugman’s smear.

Barkley Rosser May 2, 2011 at 3:46 pm

Sigh…

Someone pointed me here. I do not usually visit this site because while I generally think Russ Roberts is a smart guy and usually makes not unreasonable posts, so much of the commentary here is simply beneath contempt and utterly worthless. I shall not give a full list on this one (way too long), but vikingvista’s comment claiming that Samuelson supported the slaughter of “millions” for Soviet central planning may take the cake. However, some of the commentary has not been too unreasonable.

Regarding Russ’s post, I have to say that this is the weakest of those criticizing my original post on this matter, with the criticisms by Steve Horwitz, Tyler Cowen (partially quoted by Russ), Arnold Kling, and John Papola for that matter, looking more reasonable. Sorry, Russ, but I think you fail to make your case. Maybe you think that people know what you intended by your use of “central plan” in the video, but I would suggest that the dripping, drooling, and sometimes utterly nauseating commentary here on your own site is proof positive that you cannot count on such an outcome and that you should be careful what you put in a video that will be seen by thousands, possibly millions, including in lots of classrooms, I bet without the proper explanations. Your explanation is insufficient.

I add only one ironic observation. In Krugman’s post on this he refers to the whole debate as being “truly stupid” and then links to my original post on Econospeak without naming me or saying what he thinks of my post, thereby I believe suggesting that I am one of those he considers to be “truly stupid.” At least you did not do that, Russ, and for those who know, I suspect that PK may have done this on purpose, as he has good reason not to like me at all.

vikingvista May 2, 2011 at 4:23 pm

You may want to actually quote me before you take any cake. Unless you enjoy straw flavored cake.

Marcus May 2, 2011 at 5:36 pm

Right. You switch the definition of ‘central planning’ to one which the video is clearly not using and then claim the video is misrepresenting Keynes.

How ironic.

Sandre May 2, 2011 at 6:27 pm

I do not usually visit this site because while I generally think Russ Roberts is a smart guy and usually makes not unreasonable posts, so much of the commentary here is simply beneath contempt and utterly worthless.

You, Sir, is utterly worthless and simply beneath contempt.

Methinks1776 May 2, 2011 at 8:11 pm

Actually, Barkley, that was me. Did you not read successive versions of Samuelson’s economics text or do you just selectively ignore things you aren’t comfortable with? Talk about beneath contempt.

RC May 2, 2011 at 8:49 pm

Methinks,

Could you, Sir, be more specific and point EXACTLY where did Paul Samuelson state “that the sacrifice of hundreds of millions of people at the alter of Soviet central planning was worth it”?
Strong accusations like this one need strong empirical proof. Perhaps Samuelson was a bad economist – but if he really put such a statement into his economics textbooks then he was an unbelievable idiot (as well as a disgusting human being). And I find that hard to believe in.
So once again Sir, I politely ask for your evidence.

Regards,
RC

Methinks1776 May 2, 2011 at 9:10 pm

Common mistake, but I am not a “sir”.

First of all, don’t attribute your misquotation of Samuelson to me. My quote was “worth it”. Secondly, I already did so below. Third, his economics text was a best seller for a very long time and the various versions should be easy for you to access to check for yourself. Finally, Samuelson was by far not an outlier among academics of his generation. Arriving from the Soviet Union, we were shocked to find ourselves surrounded by them (I had a parent who spent her life in academia). I find him a disgusting human being, but that’s a value judgment. For my own reasons, I have very strong feelings about him. You are not required to buy-in.

My point in mentioning Samuelson was not to begin a debate about whether the man was a pig or not. Re-read my comment.

I was quoting Keynes. He said he didn’t find the loss of liberty necessitated by central planning worth it at this time. The implication is that it would be at some time. Who decides for you whether it is worth it for you to give up your liberty? What standard will they use? Samuelson had, in my opinion, a very low one.

RC May 2, 2011 at 9:52 pm

OK, thank you for the reply. I will definitely look up his economic textbook when I find the time. And I understand the point you were making, especially since I’m from a former socialist/communist country myself.

Regards,
RC

Anotherphil May 3, 2011 at 9:13 am

Perhaps Samuelson wasn’t quite a fifth column, but if enthusuasm can be described as support, he was a supporter. Let’s examine his thoughts on the worker’s paradises,

The last quote really burned me when I became aware of it ~30 years ago, my grandmother has just returned from visiting cousins in Eastern Europe (the vulgar mistake was dismissing the ordinary citizen because of the romance of the politburo)-that had neither prosperity nor liberty and were unhappy. This is of course as the triad of Reagan, Thatcher and John Paul II were laying the groundwork to send the USSR to the ash heap of history. (I think that’s what Reagan predicted)

“contrary to what many skeptics had earlier believed”: “The Soviet economy is proof that … a socialist command economy can function and even thrive.”6
Paul Samuelson and William Nordhaus, Economics, 13th ed. (McGraw Hill, 1989), 837.

In the 1973 edition of his Economics he predicted that though the Soviet Union then had a per capita income roughly half that of the United States, it would catch up to the United States in per capita income by 1990, and almost certainly would by 2015
because of its superior economic system.

1976 10th edition of this work — which is perhaps the best-selling economics text of all time — Samuelson wrote that it was a “vulgar mistake to think that most people in Eastern Europe are miserable,”

Barkley, you are still contentious and dubious.

Methinks1776 May 3, 2011 at 12:20 pm

I don’t dislike Barkley. Some time ago (in my only direct exchange with him) he helped me think about something differently and I’m grateful for that. However, it is more than a little ironic that he arrives on the thread, arrogantly deriding the commenters and accusing them of a contemptibly low level of discourse and then proceeds to lower the level of discourse by misquoting commenters and misattributing quotes – even after he’s been corrected.

As for Samuelson, although I admit my personal bias against the man, he’s still not the point. I dragged him out as an example. He was a leading economist, whose text, as far as I know, was the only Western economics text of its time to be translated into Russian. Yet he completely and utterly failed to understand the horror and inadequacy of planning (which, of course, is why he was translated into Russian). Unbelievably, right until the end.

If a genius nobel laureate can’t accurately assess the information under his nose (for whatever reason – ideological bias, impossibility of the task, etc.), then who can be trusted to accurately decide the circumstances under which planning for millions of people should occur and who is fit to do the planning? On what basis do we force people at gunpoint to take the risk of politically motivated plans executed by politically connected individuals?

Who decides for you what risks you should take and what costs you should bear?

There is a very real risk that a Paul Samuelson will be the one who decides that the personal misery of millions of other people can be overlooked because it yields impressive output increases – as measured by the production of ten ton nails and twelve pound shoes.

yet another Dave May 3, 2011 at 12:20 pm

Barkley, are you the pompous little man your May 2, 3:46 pm
post makes you seem?

It’s amusing that you find the discussion here “simply beneath contempt and utterly worthless” and “dripping, drooling, and sometimes utterly nauseating” in light of your nearly content-free rambling. Add to that your apparent belief that only the support of full-scale soviet style control fits the “central plan” reference. What weak and shallow thinking.

But then I could be misunderstanding your point; your post was, after all, as light on content even as it was heavy with insult and derision. In fact, your post revealed sloppy misreading on your part. I’d suggest losing the attitude to avoid looking the fool in the future.

Barkley Rosser May 2, 2011 at 4:31 pm

vv,

Oh, you were quoting someone else when you stated that Samuelson decided it was “worth it” that so many died at the “alter” [sic] of Soviet central planning? I see it is in quotes. You were quoting this from wherever because you disagree with it, perchance?

vikingvista May 2, 2011 at 5:04 pm

I do not disagree that Samuelson’s words were correctly quoted. Do you?

Barkley Rosser May 2, 2011 at 8:00 pm

VV,,

What? A quotation that is about Samuelson was by him? What kind of tripe are you trying to hand out here?

Methinks1776 May 2, 2011 at 8:56 pm

Let’s see, Barkley…..

First of all, when Viking tells you that he was not the one who quoted Samuelson, you might want to backtrack and make sure you read him correctly instead of hammering him. It was I who was the author of that post and I stand by it.

In the 1970′s version of Samuelson’s text he wrote that it was a “vulgar mistake to think that most people in Eastern Europe are miserable,”. Oh, why would we have been, right? That version was published the same year we crazy enemies of the people finally arrived in the United States.

By the mid-80′s he changed his song and asked rhetorically if the misery he could no longer credibly deny might be “worth the economic gains”. Economic gains to whom? What are these magnificent gains? What was worth it? Soviet political repression. This, he identified as one of the big dilemmas of human society. He also said that it’s “misleading” to dwell on these shortcomings of the Soviet system. Huh? I’d love the luxury of sending him to the Gulag while I sit and mull this great dilemma over tea as he twists under the Soviet boot. I would love to have heard his perspective after such an experience and then tell him he just shouldn’t dwell on these shortcomings.

Sorry….. I slightly misquoted Samuelson. My deepest apologies for sloppily substituting “it” for mythical “economic gains”. God forbid.

I am reminded of a passage from a book I read several years ago. It was a unique collection of the memories of Russian women who fought in WWII. The author recounted an exchange with a censor who (roughly translated) berated her for not loving Lenin, Marx and “our big ideas”. The author replied “No. I don’t love your big ideas. I love the little person and I also love life.”

To people like Samuelson (and many others – he was not alone), it is clear that the little person means nothing. He is disposable. And that is what is beneath contempt.

Mao_Dung May 2, 2011 at 10:29 pm

The Soviet Union is long gone, so why don’t you go back to your beloved motherland and make a go of it? Try to treat yourself to the capitalist bounty there if you can find it. Most of the country was divided up by a handful of billionaire oligarchs, and they may throw you a crumb if you perform your little capitalist dance for them. Please report back on your success in your liberated land of origin.

vikingvista May 2, 2011 at 11:05 pm

Barkley, stop being such a fool and reread what you previously misread. I’m not required to revere your contemptible gods. Since it was Methinks’ terrific post, I’ll defer to her further well-articulated responses.

Anotherphil May 3, 2011 at 9:15 am

“I’m not required to revere your contemptible gods.”

I expect to appropriate this phrase frequently. Genious, just genious.

John Papola May 2, 2011 at 5:01 pm
John V May 2, 2011 at 5:57 pm

Nice article.

But I have to say, as I have alluded to elsewhere, in response to the criticisms of your wording on “central plan”:

Is any explanation or defense of it really necessary? Obviously not. The ironic thing is that critics, like Rosser and DeLong, have brought more attention to the idea of socialist central planning actually being connected to Keynes than you or Russ ever intended in the video.

The undue attention is actually their own doing…much like the comical scenario where a person, in trying to hide something or someone from another person searching the room. stands in front of door and says anxiously “He’s not in here!”. Sigh.

BTW, the real issue with that phrasing of central planner is nicely summed up in your final remarks:

“For so-called “stimulus” spending to be self-sustaining and not just a transitory bump pulling spending into the present at the expense of the future, (see “cash for clunkers”), the planners behind the stimulus must solve entrepreneurial problems just as subject to the problem of “socialist calculation” as socialism proper.

So yes, the question I pose to Keynesians is who plans, and who spends, for whom?”

THAT’S the gist of it. That’s the real argument here. And, for what it’s worth, this Hayekian-based critique is never addressed by those supporting stimulus on Keynesian grounds. I’d like to see it.

John Papola May 2, 2011 at 7:15 pm

Bingo. That section you’ve quoted is the distillation of my efforts to debate with Keynesians on these issues including Daniel to no avail. This article is my best effort to open the floor for this debate beyond the short treatment of these issues in the video itself.

Barkley Rosser May 2, 2011 at 7:59 pm

John,

It is absolutely clear to anyone who reads Keynes remotely clearly that he saw individuals and firms making the decisions. Control of aggregates is not the same thing as control of individual planning or decisions. I increasingly think I really was right to hold you two’s feet to the fire on this one. Lots of misrepresentation.

I know that you guys are pushing your “they’re an amalgam” line, but just because John Kenneth Galbraith may have supported indicative central planning in India does not justify putting those words in the mouth of “Keynes.”

BTW, the “Hindu rate of growth” was 4%, not 1% (they have done much better since the 1991 reforms).

Oh, and I do offer my services next time around to give you guys warnings about your next script, :-) . I am actually one of those who both knows the work of both K and H pretty well and takes both of them seriously. Really.

John Papola May 2, 2011 at 9:01 pm

Hold our feet to the fire. I like it. It’s how I learn more about these ideas. You’ve been good enough to engage with me and I hope to learn from you, even if we disagree on some things.

I accidentally put the per-capita rate of growth for India between 1950-1980, which was indeed 1%. I’d love to hear more about the alleged “misrepresentations”. The amalgam is not a “line”, Barley. It’s the truth. Hayek makes higgsian arguments. Where did we put non-Keynesian words in Keynes’ mouth.

Here’s the BIZARRE thing about all of this criticism. We’re being criticized for what we have HAYEK say in criticizing Keynes. None of you have dealt at all with the fact that we also wrote lyrics for KEYNES. And KEYNES actually defends his plan for recovery as being merely about “spending”. Why’s this such a scandal, Barkley?

It’s not surprising that, aside from you, we have been attacked by the usual cast of misrepresentatives.

DeLong, Krugman, Frum and Chait on the hand really are hilarious with their stuff. Frum totally misrepresents Hayek’s macro policy norm (nominal income stabilization). DeLong is just his usual insult spewing, comment-deleting self. Chait treats our work as if it was made by some “conservative” collective being. The credits make it clear who did what. His approach is gross. But whatever. Partisans do that kind of thing.

Krugman calls the whole thing “stupid”, which is infantile in itself, then retreats to model land where somehow government spending can effect the volume of total spending without impact the direction.

I think all of this is great. It’s great that our video could induce such a discussion. It’s unfortunate that so many of you have taken such exception at a line of criticism which we put in Hayek’s mouth and was actually taken by an interview with Lord Robert Skidelsky (which I’ll be posting tomorrow).

But please, where did we misrepresent Keynes? What came out of Keynes’ mouth that is unfair to him?

John V May 2, 2011 at 11:16 pm

With all due respect, Barkley:

“Control of aggregates is not the same thing as control of individual planning or decisions.”

I think you’ve distilled the debate down to one sentence. In and of itself, your sentence is true. But I don’t see it as being that simple. That’s the crux of the debate, IMHO.

I’m no economist. I have no PhD. But from my leisure reading of the likes of people like Hayek and others of a similar view, there is a consistent foundation of thought that, for me at least, convincingly explains why you can’t influence/control aggregates without influencing individual decisions. It’s the whole “capital is not play dough but rather leggos” line of logic….and so much more. I may not be able to explain things like “the capital structure” in a way to do it justice but I had read enough of the market process and capital from these sources and how it relates to economic exchange on a large scale to know that influencing or controlling aggregates from the Keynesian view doesn’t happen in a vacuum with regard to individual decisions and that influencing aggregates usually necessarily involves influencing decisions and prices in one way or another as well as influencing how capital (in its many forms) will be used with regard to alternatives. THAT is an influence on price signals right there. To me, it’s a clumsy way of fighting what the market is saying. It’s a losing battle. The market is adjusting during a downturn. Prices are adjusting, capital is being reallocated. Everyone claims to know this…but things like stimulus have to willfully ignore its implications.

Again, I am not the economist here but others are. And the ideas I am talking about are not only FROM economists but are surly ideas you are familiar with. To me, the Keynesian view on this is so inadequate in dealing with all this complexity and fails to consider what beneficial processes it is preventing while trying to affect some short term good….a short term good that doesn’t help over the longer run. Papola explains it in the article. And I see that Methinks and Larry White addressed it on your blog. You comment at coordination problem on threads that talk about it. But neither you nor anyone who seems to agree with that sentence I quoted from you ever explains why this Austrian based concern doesn’t matter insofar as that quote above is concerned or the larger picture around it.

Justin P May 2, 2011 at 9:45 pm

Road to Serfdom is currently 337 on Amazon. It will be interesting to see how many books this little tempest in a teapot will move.

Oh and when will the shirts be available?

Barkley Rosser May 3, 2011 at 12:27 am

John,

See my newest post on Econospeak.

BTW, Keynes really did prefer “productive” spending over unproductive spending, and was not a fan of military spending, per se. But he did argue that any sort would affect employment.

John Papola May 3, 2011 at 7:11 am

I’ve taken great pains at every turn to point out that the man who wrote “The Economic Consequences of the Peace” was not a war-monger. But he acknowledged that the reality of democratic capitalist societies made it such that only wars could drum up enough support to spend at the levels his framework demands. When run through the take-this-leave-the-rest filter of politicians, however, these distinctions go away.

I’ll read you post. If you’re interested in more tone and nuance on these issues, definitely check out the Econtalk we did which came out on monday.

Mao_Dung May 3, 2011 at 12:43 pm

If someone’s economic revitalization framework requires wars for it to work properly, that sounds barbaric, and paradoxically absurd to me. I believe that economic reasons usually play a big part in aggressive wars, but I think that you are out of your depth when it comes to understanding Keynes. He was way over your and my head.

Marcus May 3, 2011 at 12:59 pm

How about Paul Krugman, do you think Keynes was over his head? Here’s what Paul Krugman has to say about Keynes and war:

http://nyti.ms/igZvRh

Keynes did not advocate wars. His “economic revitalization framework” did not, in theory, require a war in order to work. No one here is suggesting that Keynes made any of these claims.

What he did claim was that to get to the level of spending that he thought was necessary in order to turn around the economy wasn’t politically feasible unless there’s a war. He’d rather the government spend money on more productive things but he thought a war would work too.

And that’s what the video claims.

Barkley Rosser May 3, 2011 at 1:26 pm

John,

Ironically I am momentarily (from my home laptop) unable to post comments on Econospeak.

However, when I do I shall grant that you guys have the “too bad” phrase in there from “Keynes.” He did make the quote you cite about war and employment in 1940, even as he forecast that after the war full employment would be able to be maintained through aggregate demand management without war. Of course, in a different piece in 1940 he worried about the inflationary consequences of excess aggregate demand during war. That rationing reduced consumption and living standards during war was hardly something identified by Robert Higgs. Everybody knew that.

I continue to hold that you and Russ are on weak ground trying to argue that the post-WW-II recession amounted to nothing or that nobody should pay attention to the significance of changes in women’s labor force participation, which rose at the beginning of the war in the US. They did not call her “Rosie the Riveter” during the war because she had been riveting in the past.

Sam Grove May 3, 2011 at 10:25 pm

or that nobody should pay attention to the significance of changes in women’s labor force participation

I must’ve missed that.

John Papola May 3, 2011 at 8:13 am

Here’s my reply to your post:

I have a few points.

First, regarding “military Keynesianism”… our “Keynes” says in the song “TOO BAD that only happens when there’s a world war”. This is a lament, not a celebration, and one that was made by Keynes in his 1940 piece in the The New Republic.

Here’s the Master himself:

“It is, it seems, politically impossible for a capitalistic democracy to organize expenditure on the scale necessary to make the grand experiments which would prove my case — except in war conditions”

(via Bruce Bartlett http://old.nationalreview.com/nrof_bartlett/bartlett200412220847.asp)

Given the level of intense scrutiny of “your central plan” in some quarters including by yourself (though much more honestly and charitably than some others), and even in light of the fact that this line is directly inspired by our conversation with Robert Skidelsky (as you’ll soon see), I would have liked to see a little more acknowledgement of “too bad”. Is there a three word minimum on taking rap verses seriously. (I’m being a little glib here, but my point is made).

The man who wrote “The Economic Consequences of the Peace” was not a war-monger. I’ve never said otherwise.

Regarding the post WWII recession in 1945, it seems to me like the problems with nominal GDP data in a world transitioning away from large scale price controls are more than a sidetone. They are central. I direct you to Robert Higgs for that argument, who is the inspiration of our “Hayek” in those verses. Links are available at EconStories.tv to learn more. I’m not an economist, I just read a lot. Robert can defend his work. It seems compelling and logical.

It is crucial that unemployment only went up to 3.6%, Barkley. The ENTIRE premise behind Keynesian policy is maintaining “full employment”. THAT is the goal. So a collapse of nominal GDP with a minor bump up in unemployment only serves to further the case for skepticism about the relationship between employment and aggregate demand. My understanding is that Samuelson’s doomsday predictions (and they were grim in light of being in a depression) were not an outlier, but a representation of the consensus among Keynesians at the time. If this is wrong, please let me know.

As for Rosie the Riveter… if we apply this standard equally, then surely we should push the depression unemployment numbers quite a bit higher, should we not? After all, Rosie the Riveter began her riveting career out of utter necessity since Ricky the Ratchet man went off to war. Was she “unemployed” before that? This line of argument is what I believe to be called “moving the goalpost”. In fact, if we’re going to move said goalpost and judge unemployment based on the population of stay-at-home moms and wives, the entire post war era needs some adjustments does it not?

As for the 1920s and 1950s and monetary policy, I have a few additional thoughts.

Your wording makes it seem as if the inflation post WWI was exogenous to Fed policy instead of being the direct result of it. This is a common tone I’ve found in Keynesian exposition of monetary policy (not that you’re a Keynesian. I don’t know.) The Fed was CAUSING the inflation of post WWI period and it stopped. The recession that followed, in line with an Austrian analysis, was one of “recalculation” and despite the deflation which David Frum and others have treated like an inescapable black hole of despair, the recession was deep but short. Where for art thou, sticky wages and underemployment equilibrium?

It is incomplete to look at the Fed hiking rates in the 1919-1920 as the “cause” of the recession and treat the policy as if they were “fighting inflation” (to quote others). They caused the inflation. They stopped. The only thing they were fighting was themselves. Paul Krugman talks of the 1982 recession in the same way. It’s weird to me. The alternative was to keep going with the pedal to the monetary metal, with even greater inflation. Why is this not discussed? Where was the alternative in 1920 or 1980 if the Fed’s policy was somehow avoidable?

Maybe I’m just confused because I’m a member of the “pointless pain caucus” (not your words, I know). So far, I don’t know where to look for the policy that actually avoid pain in reality.

Lastly, everyone (especially David Frum) needs to come to grips with the fact that F. A. Hayek’s actual policy norm called for the maintenance of nominal spending by way of momentary policy to accommodate excess demands for money. As Scott Sumner has repeated proclaimed, his approach is very similar to Hayek’s. So the claim that monetary policy post WWII helped to ease the transition probably has merit, but it surely doesn’t counter Hayek nor favor Keynes over Hayek (or Friedman).

What made Keynes different from Hayek was his insistence that interest rates didn’t coordinate saving with investment, that “liquidity preference” defined the interest rate, and that monetary policy would become stuck in a “liquidity trap”, hence the need for Fiscal policy.

I turn your attention to this article:
http://online.wsj.com/article/SB10001424052748704738404575347300609199056.html

“It is agreed that hoarding money, whether in cash or in idle balances, is deflationary in its effects. No one thinks that deflation in itself is desirable.” – 1932.
Now hear this. F. A. Hayek and Lionel Robbins were proclaiming in 1932 in the pages of the Times that “NO ONE THINKS THAT DEFLATION IN ITSELF IS DESIRABLE”.

Money is a specific good. Creating more of it to meet demand is a very different kind of economic process than treating “goods in general” as some blob which can have a “glut”. So I do not see monetary policy to maintain NGDP as being similar to keynesian fiscal stimulus. But that’s for another time…a

John V May 3, 2011 at 10:38 am

Another dead with question, Barkley?
http://cafehayek.com/2011/05/keynes-and-central-planning.html/comment-page-1#comment-207294

You are a professor. How would you handle my general question in class? What would you say? What am I missing from Keynesian insights that makes my question irrelevant or not important?

John V May 3, 2011 at 10:39 am

should read: “dead end question”

Dan May 3, 2011 at 1:29 am

Gentleman, many of you are to be congratulated on, at least , one thing…….. The discussion of economic theory is infiltrating into more mainstream discussions. They are not on your level, but the discussions of economics is more prominent. The danger, of course, is left wing progressives hijacking the discussion and influencing many with the same tired arguments of class warfare, race, and the benefits for the less affluent.

John V May 3, 2011 at 10:34 am

Does Paul Krugman really pay attention to what people say? I think not.

Anyone who has followed the Keynes-Hayek debate resulting from the video cannot help but notice the ignorance in his posts on this….likely resulting from a smug indifference to what people are actually talking about. As a result, he argues against straw men. Nice, neat and brief. How easy for someone of his stature….and lazy.

See here:http://krugman.blogs.nytimes.com/2011/05/03/in-the-long-run-keynes-is-dead/

Marcus May 3, 2011 at 10:48 am

Here’s the comment I posted:

You’re tilting at windmills Paul. The irony is that to pretend the Keynes vs. Hayek video can only be accusing Keynes of Soviet style planning is to duck the real issues.

John V May 3, 2011 at 11:02 am

That’s almost exactly what I posted:

—————————————————————————-

“To pretend that this amounts to an advocacy of Soviet-style planning — as some conservatives do — is to duck the real issues.”

To pretend that this is the charge in the wake of the recent music video by Russ Roberts and John Papola —- is to duck the real issues.
—————————————————————————–

As of this moment, it’s still not up. Those pesky moderators take forever.

Justin P May 3, 2011 at 11:09 am

Did it make it past moderation? I’d be surprised if it did. None of my comments are ever published so I stopped trying.

John V May 3, 2011 at 11:15 am

We’ll see. As of this second, there are still ZERO comments…from me or anyone. Such a delay is bad for conversation.

Sam Grove May 3, 2011 at 3:08 pm

Aggregate spending as effected by political agency via a central bank IS central planning of aggregate spending.

Certainly the monetary authorities aren’t planning the spending decisions of individuals, but would be pretentious to suppose that the larger plan has no impact on lesser plans.

Taken in context of the real world, we have to consider implications.

In Austrian theory, the aggregate monetary policy of boosting demand by increasing government spending produces signals that synchronize investment decisions resulting in an economic boom (they are always called booms before and bubbles after).

The problem with such a boom is that any amount of money allocated for the stimulus must eventually be exhausted.

The hope of Keynesians then. is that the economy will have been sufficiently stimulated so as to absorb the deleterious effects of pumping money or credit into the economy.

The side effects include the possibility of an inflationary trend or the contraction that occurs when funds are depleted.

The deleterious effects at the micro level include (but not limited to): savings are reduced in value and people on fixed incomes must contract their discretionary spending or otherwise reduce their standard of living, taxpayers will see an increased in their tax burden to pay off the debt (if the stimulus was funded by borrowing), those employed by stimulus funds will see their jobs disappear when funds are exhausted.

vikingvista May 3, 2011 at 4:29 pm

“The deleterious effects at the micro level include (but not limited to):”

…and resources are diverted from market-chosen endeavors;
resources are consumed by nonproductive politically-chosen endeavors;
productive endeavors are divorced from price signals, thus morphing into nonproductive endeavors;
the pathologic endeavors that made up the bubble are propped up, resulting in the prolongation of bubble effects;
politicians who excel in vote buying and cronyism gain new and lasting powers…

And all of the dire consequences of this intervention cause people to demand and get even more intervention–the positive feedback loop of political intervention in markets. That’s the only real multiplier effect.

Barkley Rosser May 3, 2011 at 5:00 pm

To John and Russ,

So, I have been seeing both of you claim Skidelsky as the source of your claim that “Hayek came at Keynes from his critique of central planning.” Maybe he said something like that to you (he never has to me, but then I have not discussed the issue with him), but I did just go back and read his essay on “reconciiation” that deals with their relationship. I find nothing of the sort in there at all.

Skidelsky attributes their disagreements about macro to a difference in belief about the self-stabilizing nature of the economy. Period.

He does have a lengthy discussion about their discussion of Hayek’s Road to Serfdom, in which Skidelsky notes that mostly Keynes was agreeing with Hayek and that both were worried that some in Britain would not want to undo the wartime controls and planning. He does note some disagreements. He notes Keynes’s remarks about “moderate planning,” much quoted in this discussion, but does not provide any reply from Hayek or say that this is what Hayek disagreed about.

Rather there are two points. One is on “where to draw the line,” but this is not about planning but more about welfare state items, how big should the social safety net be, and so forth. The other is on attitudes towards money, with Keynes making negative remarks about “the money motive” in various writings, with this upsetting Hayek.

Skidelsky himself notes that Keynes “opened the door” to a “hubristic Keynesianism” that would support more government intervention in the economy than Keynes himself would support. But this is not a reference to any argument made by Hayek.

So, maybe you guys have sources aside from that essay, but that is Skidelsky’s main piece on their relations, and it never comes close to supporting your contention that central planning was the main issue that formed the basis for Hayek’s critique of Keynes’s ideas.

Sam Grove May 3, 2011 at 10:56 pm

Recommending the government set aggregate spending IS “a central plan”.

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