Harry Johnson on Keynes

by Don Boudreaux on June 11, 2011

in Books

Daniel Kuehn’s apparent surprise that any serious scholar – for example, Joseph Schumpeter or Thomas McCraw (or any gadfly; for example, Don Boudreaux) – would regard Keynes as a stagnationist got my brain racing.  Where, where, where did I long ago first encounter a mainstream economist who identified Keynes as a stagnationist?  Fortunately, my mind raced fast enough to remind me of the late Harry Johnson.  Johnson was (partly) a Chicagoan, it’s true, but hardly a Hayekian or Austrian, and certainly no ideologue.

So I found my long-neglected 1975 collection of some of Johnson’s best essays, On Economics and Society, and reviewed for the first time in more than 15 years the fascinating readings collected therein.  Here’s from Johnson’s 1960 address at the American Economic Association’s annual meeting; the address (published in the May 1961 issue of the AER) is entitled “The General Theory After 25 Years”:

A more relevant question is whether large-scale unemployment is the typical situation of the advanced capitalist economy, as the theme and prevailing tone of the General Theory imply, and as the stagnationists of the 1930s insisted.

By the way, Johnson in a later, a 1973, essay (“Keynes and British Economics”) noted that

the ‘new economics’ won acceptance in the United States only as recently as the tax cut of 1964….

Just FYI.

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{ 111 comments }

Steve_0 June 11, 2011 at 10:35 pm

I really wish DK would shut up. I prefer Muirgeo.

Don Boudreaux June 11, 2011 at 10:44 pm

I disagree. DK has brains and knowledge and a capacity to reason. Muirgeo, in contrast, seems to have only quotations from the glib-but-ignorant William Greider and a deep faith in the healing powers of democratic collectivism.

muirgeo June 12, 2011 at 1:06 am

I don’t see any of you libertarians walking away from this democratic collective to join all the worlds libertarian societies or set up your own since none exist at present.

What I believe is not faith. It’s the real world. It’s the proven entity with the success we can see in all the social democracies around the world. Me and you have been the products of a post FDR society privileged to have grown up in the richest country the world has ever seen. Now that you’ve benefited you’ve decided you owe nothing to no one. You’ve abandoned reason and what works for a faith based belief because no such society like you propose exist anywhere in the world. Logically it doesn’t even make sense. I can’t see how a libertarian society could not devolve into some form of serfdom once all the property and means of production where monopolized. In your world the best way to become wealthy would be to be born into wealth. There’s not a lot of liberty in that.

Troll Finder June 12, 2011 at 1:22 am

Oh snap.

Sam Grove June 12, 2011 at 2:02 am

I can’t see how a libertarian society could not devolve into some form of serfdom once all the property and means of production where monopolized.

That’s because your vision has been stifled and is now bound by the “leftist” interpretation.

The state is the mother monopoly.

muirgeo June 12, 2011 at 12:27 pm

No it’s because I’ve thought it through and I’ve also asked people like yourself to explain it to me… but you can’t either.

Sam Grove June 12, 2011 at 4:28 pm

But if you start with faulty premises, you will arrive at a faulty conclusion. In fact, your conclusion is also your premise. No one can make any explanation that will alter your course from that premise to that conclusion.

You know it’s so, so any thinking you do will always take you to what you know is so.

You complain that the wealthy have undue influence over the political process yet cannot see that that is how it will always be the case. Political power must always be wielded by a relative few. All democracy does it legitimize it.

brotio June 13, 2011 at 3:35 am

No it’s because I’ve thought

Every now and then, you say something incredibly funny.

I’ve also asked people like yourself to explain it to me… but you can’t

Don’t blame Sam for your inability to comprehend. The other day, you posted about living next to a toxic dump (or some such thing) and being practically the only survivor. Maybe you should go after that company. There has to be a reason for your stupidity.

Ken June 12, 2011 at 2:23 am

“Me and you have been the products of a post FDR”

So you recognize that only post FDR, sound policies were made. That’s a start at least. It takes a while for some I know, to see that the products of FDR deepened and extended the Great Depression for at least seven years. And of course one of the pearls in the New Deal, and FDR product, played the central role in the housing meltdown.

muirgeo June 12, 2011 at 12:31 pm

Ken,

No … I submit that post FDR his policies persisted and allowed for our prosperity.

I also submit that when I ask you the following question crickets will chirp… Specifically, name ONE post FDR policy change that allowed the economy to grow. Let me know to please… in honesty…. if this is an answer off the top of your head or did you need to go research it a bit before getting back with me.

Ghengis Khak June 12, 2011 at 3:02 pm

muirgeo,

Society has flourished despite (or unrelated to) any FDR policies. To name a few advances in the marketplace that have vastly improved standard of living off the top of my head — biological sciences, manufacturing, materials sciences, telecommunications and computers/technology.

These have little to do with post-FDR policies, other than the fact that stable private property rights (which you seem to want to erode) underpin these advances; meaning the people driving innovation largely do so out of a desire for personal gain/material wealth. I know the idea that self-interest can actually benefit all parties involved conflicts with your worldview, so you will probably avoid digesting this comment. But I thought I’d try anyway.

muirgeo June 12, 2011 at 6:03 pm

“… biological sciences, manufacturing, materials sciences, telecommunications and computers/technology.

These have little to do with post-FDR policies,…”

Bullshit; There was a GI bill that educated massive numbers of men and women and we spent more than other countries on government research leading to the development of all those things you want to assume are completely the work.

YOU are guilty of denying reality. it’s that simple.

I don’t have to deny the value of capitalism to hold my position. We need both good government and well regulated capitalism. There is NO evidence that minimizing government spending or regulations improves economic function. In fact every time we go too far in the direction you fellas push for we run into major economic collapses. And then we have to sit and listen to you guys tell us the fastest way to get out of the disaster you created. It’s pathetic.

Ken June 12, 2011 at 10:14 pm

“name ONE post FDR policy change that allowed the economy to grow”

Do you mean a policy that came into existence AFTER FDR or are you again abusing the english language and asking about FDR policies persisting after he died?

I’ll assume the former, but talk about the latter. As mentioned before the deregulation of airlines led to economic growth. The Deregulation Airline Act passed in 1978 gave rise to companies such as Southwest and Jet Blue. The airlines started to compete, new companies rose up, and the dinosaurs died. The new environment made it so that even the poorest in our society could enjoy air travel.

Deregulation of the telecommunications industry started in the 60′s and continued for decades. This gave rise to enormous increases in the economy, producing tons of diversity and competition. Instead of a handful of channels on TV, we now have thousands. Instead of a few mega corporations controlling everything we have hundreds providing value to anyone that cares to tune in. Additionally, this deregulation has led directly to the rise of the internet, one of the main drivers of the economy today.

Seems unlikely you missed that since you must use the internet to comment on this site.

As for FDR policies that crushed the economy, merely take a look at the New Deal itself. The US economy began to recover in the mid-30′s then FDR launched a reign of terror against businesses and called it a new deal. FDR himself is directly responsible for the misery of millions in the US by extending and deepening the depression. It’s particularly appalling that this happened at a time when it looked like there was going to be a recovery.

And today, we are dealing with the results of Fannie Mae and Freddie Mac, two institutions born of the New Deal and the cause of the housing meltdown.

Regards,
Ken

Sailingbum June 12, 2011 at 7:50 am

muirgeo exhibits a classical case of psychological projection..

muirgeo June 12, 2011 at 12:34 pm

Oh? How so? What attribute am I denying and who am I attributing them to? Specifically.

Steve_0 June 14, 2011 at 12:55 am

Don’t forget deregulation of the phone companies. We went from expensive per minute rates to computer controlled phones where no one even thinks twice about “roaming plans” anymore.

MWG June 12, 2011 at 5:12 pm

“I don’t see any of you libertarians walking away from this democratic collective to join all the worlds libertarian societies…”

Love it or leave it, right Muir? You ideology seems to be a little nationalism mixed with a little socialism. Hmmm, where have we seen that before?

muirgeo June 12, 2011 at 6:07 pm

“Hmmm, where have we seen that before?”

Here… in the United States after the republicans crashed the economy into great economic depression FDR came along and brought us back our national pride and then opened up a can of whupp ass on Hitler and Japan. And the pride, nationalism, a bit of socialism and democracy lead to the greatest economic expansion ever and the blossoming of the largest middle class ever…. yeah we’ve seen it before and I’d call for more of the same.

Dan June 12, 2011 at 6:12 pm

FDR? A criminal. Corrupt. Anti-markets. Economic disaster.

MWG June 12, 2011 at 8:04 pm

@Muir

Actually, I was thinking more like the Nazis, but it’s funny that you mention FDR. It’s ironic that he went to war against a government with whom share had so much in common with ideologically.

“And the pride, nationalism, a bit of socialism and democracy lead to the greatest economic expansion ever and the blossoming of the largest middle class ever…. yeah we’ve seen it before and I’d call for more of the same.”

So… IOW you’re calling for another world war in which we destroy other economies in Europe and Asia, making ours the only intact economy. It sounds like an excellent idea.

vidyohs June 12, 2011 at 1:19 pm

Funny, outside of DK’s superior ability to write a coherent thought, I see no difference between him and muirduck when it comes to their shared leftwing ideology and the use of a disingenuous style of debating.

Yep, right from the git-go it was obvious that DK is an intellect with a lot of potential; and it was also obvious from the git-go that he is still hung up in that 1st stage of Winston Churchill’s description of ideology, “If at twenty your aren’t a liberal you have no heart, and if at forty you aren’t a conservative you have no brain.”

The USA has enough collectivist and statists, we could do with a whole lot less.

DK has a brain, but it is a nonproductive brain as long as everything he writes always consistently invariably undeniably constantly takes a left hand turn before he finishes: Not always a hard left, sometimes just an oblique; but always to the left, the statist, the collective. What good is a brain that can not recognize that there is no single instance of a successful enduring socialist state.

And then when challenged, he will spend an entire day debating everyone in an endless stream of replies to show that he did not take that turn and never even contemplated it. DK will maintain that stance even when directly quoted on the turn being challenged.

As for the capacity to reason you attribute to DK, how does that reveal itself when he always inevitably invariably consistently and constantly refuses to recognize his left hand take on things? Is a man, even a young one, reasonable when they have such blind faith that trying socialism all over again is a good idea? Is it reasonable to think from the historical evidence that any nation can just be a little socialist and not progress farther down that road as a matter of inevitablity?

DK has been posting here for going on near three years now, and I can’t see where anything you, Russ, Indiana Jim, and other experts in economics; or, bonafide solid street people like Methinks, Mesa Econoguy, Martin Brock, John Dewey, etc. et. al., have said or pointed out to DK that has made one iota of difference in what he writes and reveals about his “thinking”. No different from the muirduck.

I don’t know Don, I see potential written all over DK; but as long as he knows more than you or Russ put together, I have my doubts that he will reach it. He will be a trouble source somewhere for someone, maybe many, until he understands and truly believes that every single human interaction is individual. At that point DK would be a great asset to advance human freedom.

Right now he doesn’t show that he is to that point.

Lee Waaks June 11, 2011 at 11:08 pm

I agree with D. Boudreaux. D. Kuehn is thoughtful and willing to engage. You can learn from him. The more he talks, the better. Telling him to “shut up” is unbecoming behavior for libertarians. We are libertarians because we believe much state action is pernicious and counter-productive. We are only shooting ourselves in the foot if we behave like rabid left-wingers.

Chris June 11, 2011 at 11:50 pm

Or as rabid right-wingers….

Lee Waaks June 12, 2011 at 12:44 am

Sure, if you want moral symmetry.

Chris June 12, 2011 at 12:54 am

Say what?

vidyohs June 12, 2011 at 2:53 pm

Okay, what’s a rabid right winger, who are they and where do you find them?

Give me the name of someone in the main stream that gets so carried away with hatred he spits on himself when he ranting like Oberman, Schultz, or Matthews.

The FBI says about 90% of what is called political crime, ideology based, in the USA is committed by those on the looney left, yet no MSM outlet or voice will admit that there is such a thing as a rabid left winger, much less mention it once in awhile.

Chris June 12, 2011 at 6:24 pm

Um….Glen Beck…Rush Limbaugh. Ever heard of them? C’mon Vid! You can’t possible be trying to suggest that ideologues on the right are any different from those on the left! There is nothing more distasteful than a political party that claims to represent small government except to the extent that it should regulate consensual conduct between homosexuals in their bedrooms! The right is just as bad as the left!

Dan June 12, 2011 at 6:27 pm

Nice try at redirection. I have never heard any person…… ANY….. Make a call for regeulating the activities of individuals in the bedroom, aside from Californutties wanting laws to prevent smoking in you own home.

Chris June 12, 2011 at 6:38 pm

Dan. It’s not a redirection. The social conservative movement wants to regulate the private conduct of individuals. Just because you and Vid are sympathetic to the right does not change the fact that there are plenty of ideologues on that side of the isle.

vidyohs June 12, 2011 at 7:07 pm

@Chris

Glen Beck, never once saw him or heard him reduced to spittle on the chin from hatred, as is common with Oberman, Schultz, and Matthews. As a matter of fact, point to one single thing Beck has said that you can verify to be absolute wrong much less hateful and rabid. Go ahead amigo, go for it.

Same with Limbaugh. Rush may be bombastic and good with the satirical thrust to the inflated egos and intentions of the looney left, but you can’t come up with one verifiable rabid thought or statement he has ever made.

Your problem seems to be that you are a looney lefty and see everything through the lens provided by your masters.

Rabid people, looney lefties, want to manipulate, control, utilize, and punish everyone who challenges their beliefs, and they will not leave any one alone, everyone must march to their drumbeat.

Rabid right wingers want to be left alone in a just and natural world to work and create as individuals without interference.

Gotta hate people who just want to be left alone and who will leave others alone, eh? Just gotta hate them! Damn sorry bastards, want to work and keep what they earn. Such sorry sorry shits, eh Chris?

Chris June 12, 2011 at 7:22 pm

Vid…quit being a chicken shit and admit that the Republican party is OWNED by a group of rabid evangelical Christians who want the government to regulate the private conduct of individuals in their own bedrooms! They don’t want gays to be left alone….they want to punish and change them! Sorry if that fact hurts you bud…bit it’s the case.

Btw…Beck has said on several occasions that Obama hates white people. Now…let me act like you….can you point to one single piece of evidence that shows that Obama does in fact hate white people? Huh? Where’s your evidence Vid?

Dan June 13, 2011 at 1:27 am

With what legislation?

Chris June 13, 2011 at 7:40 am

Thank goodness with no legislation yet.

vidyohs June 13, 2011 at 11:28 am

@Chris

“Vid…quit being a chicken shit and admit that the Republican party is OWNED by a group of rabid evangelical Christians who want the government to regulate the private conduct of individuals in their own bedrooms! They don’t want gays to be left alone….they want to punish and change them! Sorry if that fact hurts you bud…bit it’s the case.”

I love it when an opponent makes my point for me. It seems, Chris, that when I scratched you with a little opposition to your screed, I exposed the rabid part of your looney left ideology. And, I have found that that is the typical results of opposing looney lefties, it just drive you cupcakes right over the cliff into lying spittle spewing hatred.

Ok let’s deal with the disingenuous Republican issue first. No where have I said I was defending Republicans. I said I wanted to know who the rabid right wingers were and where I could find them. It seems you might be so blinded by hate that you haven’t noticed how left wing the Republican party is. Outside of your obvious hatred of Christian Evangelicals, find me one instance of Beck, Limbaugh, or any other prominent right wing voice that has ever gone into the lying hate clogged spittle spewing redfaced rants that are common with Oberman, Matthews, Schultz, looney left members of Congress, and labor leaders.. Yes Beck and Limbaugh, especially Limbaugh, will poke the looney left with the sharp needle of honest opposition but point me to a time in history when honesty could be deemed as rabid. Calling those who make honest critique (critique justified by objective observation of speech and deed) rabid seems to me to be a tactic only the looney left will engage in.

And, if seeing no evidence of the Republican party today being hijacked and owned by Christian Evangelicals makes me a chicken shit, then I must ‘fess up. Perhaps our disagreement over this is really an issue of me seeing people who have standards and character, and who want to live by those, not as Christian evangelicals but simply as people who do not want to continue down the looney left road of moral and character degeneracy. Are there people who would like to make laws, or enforce laws, regarding what we (queers and straights) do in our bedrooms, of course there is a small minority to be found and found in both the democrat and republican parties, as voting in the national and state congresses has shown. To me that is a non-issue.

I don’t know if you’re male or female but it seems I will be correct when I say I don’t care what you and your boyfriend do in your bedroom; but, I do think I have a right to a choice in who teaches my kids, is their scout leader,…..in short I believe it is a violation of my natural rights if you use the law to force association with you on the rest of us who would just as soon have nothing to do with you. And, that belief of mine holds not just for queers but for politicians of any stripe, and the public in general. You can be as strange as you choose to be and I would probably find a way to get along with you on a job or on a sports team; but I absolutely reserve the natural and legal right to restrict you from any part of the public or private life of myself and my family.

I certainly do not care if you marry, have at it. I don’t believe that government or just people in general have a right to dictate who can “marry”; and if government privilege is going to be handed out on the basis of that term, then not to acknowledge queer marriages is an act of blatant legal bias and unconstitutional. The label marriage is meaningless to the true nature of a union and only has value when it acts as the gateway to privilege. And privilege should be either unavailable or available to all of us on an equal basis.

Ok, we got Republicans and homosexuals out of the way.

“Btw…Beck has said on several occasions that Obama hates white people. Now…let me act like you….can you point to one single piece of evidence that shows that Obama does in fact hate white people? Huh? Where’s your evidence Vid?

Well it seems we got here (you’re scrambling to make a case of some sort) through that looney left disingenuous shift of topic that is so popular with those on your side of the rift.

Tell me, cupcake, does saying that Obama hates white people make some one rabid? Does looking at what evidence is available and concluding that that hatred is likely, an act that can only be rabid. And, if that opinion is spoken in a normal routine speaking voice for the occasion does that make the speaker rabid?

What evidence is there of the idea that Obama might hate white people…….hmmmmm, hows 20+ years of sitting, listening, applauding, and amen-ing, Jeremiah Wright, the lying spittle spewing white hating minister of his church. Evidence of hatred, well maybe not outright hatred, but bearing a deep seated grudge (similar to hatred) I’d say is probably correct. Other than that I haven’t delved into this aspect of Obama that much; however, it is apparent that his brief track record as a member of congress showed that he was another cut from the same mold as Maxine Waters, Charlie Rangel, Sheila Jackson Lee, etc. et.al. Those people can wear their racism like a badge because their districts and positions are secured by the dominance of the black vote, they don’t need the white people to stay where they are and that attitude radiates off them.

Obama found that when he became president that suddenly he needed those white people’s support, so you don’t see the same Obama anymore. Do you, Chris, really think Obama has changed inside through the miracle of election to president. If you are that naive…..then being a looney lefty is a natural fit for you.

What really pisses you off about Beck and Limbaugh is that they skewer you and the looney left in general with truth delivered in routinely humorous manner, and it is a truth that you and yours find impossible to hide from. And, now the potential and capabilities of the internet make it easy for them to find the rocks you/looney left hide under and tip them over to show the public.

In closing, Chris, you’ve failed miserably in your task of showing me one “rabid” right winger, all you’ve done is to bring up people that rough you up with their opposition, but none of whom are in the same class of lying spittle spewing, redfaced, ranting hater as those whose names I have put in front of you. And, of course you showed me the typical disingenuous move of the looney lefty, which also failed.

It’s been fun, but I am through with you now.

Chris June 13, 2011 at 2:12 pm

Vid….you are so funny man and here’s why. Your phony sense of indignation cracks me up. You proceed in some long rant to accuse me of not dealing with your charges when you do such a splendid job of twinkle-towing around mine that you probably ought to try your hand at gymnastics or figure skating. Point to one spot where I accuse you of hating gays. Really…just one. And my god man…if saying “chicken shit” makes me rabid…then really, you have to explain to me how the stuff that comes regularly from Beck and Limbaugh doesn’t, by some miraculous conceptual twisting, exist completely on par. Btw…there’s a clip from Beck’s show where you can see him say that he’d like to poison Nancy Pelosi. Now…vid…darling….I know, I know….you’re through with me…..but really, babe, just please explain to me how that’s not rabid. Oh…and one more thing because I just have to live up to the example you set. If there is so much evidence from Obama, why is it you have not produced any here? Hum?

But hey….let’s go back to the homosexual thing because you know what? The thing that is so hilarious is that you somehow think that I want to force you to associate with homosexuals. Vid…pal….I don’t want that any more than I want someone to force me to associate with you. But once again….there are those in the Christian evangelical community who feel it is there mission to define the types of relationships consenting adults can have and want to see the government intervene to prevent such people from joining together for life. Are you one of them? How would I know? But they do exist and they hold sway in the Republican Party. So Vid…ease off the wanna’be macho and don’t acting like everything I say is meant as a personal insult to you. Got it ace?

Yours,
Cupcake

vidyohs June 12, 2011 at 2:49 pm

Lee Waaks. What have you ever learned from DK that will take you one step farther down the road to individual freedom and self sufficiency?

Sure it is nice to hash out where you’ve been, but all I have ever read him to say tells me that he looks longingly backwards and thinks perpetuating socialism, statism, and collectivism is a good thing, more to the humanities benefit than to its detriment.

DK is as staunchly and firmly established, invested really, on the statist side of the left-right rift as is muirduck, bet on it, take that to the bank.

I will periodically read his posts for the same reason back in cold war we used to read the bad guys communications, it is good to know what the other side is talking about. So, in that sense one can learn from the Disingenuous Kuehn.

Commentator June 12, 2011 at 12:04 am

But I think there is point missed that is political rather than economic. In 1929 and onward there were breadlines in the USA. Even stalwart Republicans would not abide that. So the main reason to spend government resources on infrastructure projects was to put people to work so they could care for their families. And with labor so inexpensive, it was a bargain at that.

The difference today is that there are no breadlines. And people could get much worse jobs than they now have. And the only reason illegal immigrants do jobs citizens won’t is the pay is too low. Remove the illegal immigrants and the pay would increase toward equalibrium. So, the ideal solution seems to be government stimulus toward low wage jobs designed to improve the infrastructure, tax incentives to create or expand businesses, temporary unemployment benefits, and time. As long as people are not starving but just poorer and/or more miserable (which is the incentive to work), what is the rush? Any delay in recovery and jobs creation is well worth it for the sake of savings (lack of wasted government spending) and efficiency (the creative side of creative destruction) and long-term benefits.

ArgosyJones June 12, 2011 at 1:21 am

Whoaa there buddy….

remove illegal immigrants?
government stimulus?
infrastructure spending?

That makes you a commie here!

Commentator June 12, 2011 at 12:29 pm

I’ve only skimmed these responses, but I have been unclear. I’m basically for small and effective government, but not hyper-libertarian. I think the economy fixes itself either quickly or slowly through adjustments made by business and individuals (businesses being individuals). Perhaps the greater the disturbance the greater the time to recovery, e.g., the Great Depression. Put another way Schumpeter is right eventually. But when? Five years; ten years? I wouldn’t watch able bodied heads-of-households sit idle while their children suffer until the economy recovers for that long. So whatever is on the government’s legitimate to-do list (bridges, roads, defense, police, things even conservatives agree are government endeavors) then do, I think. Pay a low livable wage and don’t permit civil service unions (like FDR). There will be a Keynesnian effect of whatever multiple, but that’s almost beside the point I’m making. If labor’s cheap, let’s build a subway system for Los Angeles (or whatever); or expand the voucher program for education; or build better attack aircraft, battleships, and body armor; with labor inexpensive and borrowing inexpensive, I think there is a place for government stimulus, infrastructure development, and putting people to work. This would be part of a balanced approach that also involves monetary policy and supply-side policies.

What Obama has done is the worst. Wasting money creating quasi-jobs that are civil service union embedded, overpaid (and thus creating fewer jobs), and of dubious value generally; and unemployment benefits; etc. Terrible. Agreed. Beyond the Keynsianism – Lafferism debate, this is Bad Keynsianism and really Crony Socialism of the Boss Tweed variety.

I’m a Reaganomics believer, but like Reagan who was an FDR Democrat I think one of FDR’s efforts was correct for political reasons – end the bread lines and build the USA stronger.

Illegal immigrants: I’m just tired of that catachistism that illegal immigrants do jobs USAers won’t. If you pay me $500/hour, I’d pick cotton and be a reliable worker. Money finds, attracts, and/or creates dependable workers.

John Dewey June 12, 2011 at 1:58 am

Commentator: “And the only reason illegal immigrants do jobs citizens won’t is the pay is too low.”

I disagree.

First, most illegal immigrants have earned wages which would be acceptable to millions of American workers.

Second, the reason such immigrants are employed is not because Americans won’t do the work. In many if not most cases, it’s because the immigrants work harder and are more reliable than those Americans who would accept such work.

Please know that I am not criticizing the bulk of the American workforce. But I do know that millions of American workers are unreliable and unwilling to work hard. It is those workers that illegal immigrants have displaced.

Dan June 12, 2011 at 4:15 am

I have paid ten dollars an hour for temp work to a few people who were loitering a Home Depot and spoke little English. Less than the American for 3 hours of unskilled labor and they worked very very very very hard. Much harder than the American who worked for a few hours. gotta love the person who is working to obtain another job with you.

Krishnan June 12, 2011 at 7:43 am

Alabama just passed an “Illegal Immigration” law a few days ago – We will soon see Law Enforcement in Alabama being aggressive about throwing those illegals in jail (along with many who are here legally but may not have said “Yes sir” or some such) – We will soon find out how the unemployment rate changes in Alabama – if we are to believe those that yelled loudest for throwing illegals out – we should expect crime rates to drop precipitously and for just about everyone in Alabama to find a job …

To that I’d say “yea right”

Alabama will turn nasty in September 1 when the law takes hold – anyone that does not look like they are “from Alabama” could be stopped and questioned – I guess people better start carrying certified and genuine ID cards that say positively that they are Citizens of the Great State of Alabama (Ofcourse the USA)

Don Boudreaux June 12, 2011 at 7:55 am

What a disgusting development.

MT June 12, 2011 at 10:34 am

From the Wall Street Journal article about the Alabama law:

Opponents of the measure say the impact of an immigration-enforcement measure signed into law last month in neighboring Georgia offers a cautionary tale.

Farmers there are reporting difficulties in finding enough workers, just as they enter a peak harvest season for many fruits and vegetables. According to a recent survey by the Georgia Agribusiness Council, 46% of respondents said they were experiencing labor shortages.

The council estimates that the resulting losses could total $300 million this year, said Bryan Tolar, the group’s president. Unpicked crops are “dying on the vine,” he said.

Philip Grimes, the owner of Docia Farms in Tifton, Ga., said only half of his 100-person crew showed up two weeks ago to begin harvesting canteloupes and watermelons. The absentees “were scared to come in,” he said. “It’s going to be a disaster.”

http://on.wsj.com/l9gV0Q

Polly June 12, 2011 at 10:56 am

It’s such a shame that all those great minds in D.C. cannot come up with a plan that allows enough LEGAL immigrants to come to the U.S. on some sort of temporary work permit. It’s so much easier to just quit enforcing immigration laws and hope enough of the ILLEGAL immigrants who come here actually plan to work.

Commentator June 12, 2011 at 12:36 pm

So silly; the law is a good one and you’ve gone with “cops are pigs.” People hassled based on ethnicity have a recourse. The citizens should not have to endure illegal immigrants BECAUSE they tend to be Mexican (actually most are Candian and Chinese I read somewhere).

I say get these illegals out now and put them on the back of the line behind the Mexicans waiting. That is Social Justice 101.

MWG June 12, 2011 at 2:34 pm

@Commentator

You’ve got your head tucked deep in a dark hole if you think immigrating to the US is a matter of merely ‘waiting in line’.

Dan June 12, 2011 at 6:20 pm

Hasnt gotten nasty in AZ. Only the kooky, professional protestors have gotten nasty. But, their distasteful behavior is to be expected.
There is nothing that will cause a person to get up off his duff and work for compensation to acquire his/her ‘needs’ like necessity. No free govt money for years n end and that unemployed person will suddenly be employed.

MWG June 12, 2011 at 7:54 pm

@Dan

Actually, SB1070 hasn’t taken affect yet in AZ.

Commentator June 13, 2011 at 12:45 am

@ MWG.

I thought it was one applied and is prioritized for authorization to immigrate. But you’re the one who is confused. We don’t want illegal immigrants here. That is why it’s the law. You might want them here, but that’s not democracy. I don’t really care what the legal process is for immigration. Obey our laws first otherwise we’d wisely presume you are not lawful and thence probably more burden than benefit.

This is more Boss Tweedism on the part of the Democrats; get more poor miserable people here to help plunder the wealthy (who already are paying for everything – once effective lifetime tax goes over 50% that’s quasi-enslavement by the majority and it’s closing in on that; short of 50% is socially unjust). The truth is the poor and middle-income have the best deal in the history of the world and internationally – by far!

Dan June 13, 2011 at 1:25 am

Oh….. The law is being played out. Much has changed here since the law was passed. Legally, it is not in place. And, I would say it is unlikely needed as implementation. The threat of the law taking effect has changed many things. What has not changed is the death zone known as the Mexican border.

Dan June 13, 2011 at 1:28 am

And, I did not say I endorse or like the law.

MWG June 13, 2011 at 1:49 am

@Commentator

“But you’re the one who is confused.”

Uh… I’ve actually been through the immigration process on behalf of my wife and members of her immediate family. I know from firsthand experience exactly just how much bullshit is involved in the whole process. The fact that you believe there is some line that people ‘get in’ shows just how ignorant you are of the process.

Don’t accept my personal experience alone. Reason documented quite nicely what legal immigration into the US looks like.

http://reason.com/assets/db/07cf533ddb1d06350cf1ddb5942ef5ad.jpg

Just like in the days of alcohol prohibition and drug prohibition you see a massive black market in terms of immigrant prohibition.

“We don’t want illegal immigrants here. That is why it’s the law.”

??? Besides the fact that these two sentences make no sense when paired together, who’s this ‘we’ you’re referring to? You’re a collectivist?

“Obey our laws first…”

So that’s you’re argument? The law is the law? So not only are you a collectivist, you’re also a statist authoritarian. I wonder who you would have sided with in terms of the Fugitive Slave Act. The law is the law, right?

“This is more Boss Tweedism on the part of the Democrats; get more poor miserable people here to help plunder the wealthy…”

I think you’re new here, so all I’ll say is you’d be quite wrong in assuming I’m a democrat, but go ahead and slay those strawmen all you want.

MWG June 13, 2011 at 1:57 am

@Dan

I live in AZ as well, and the only changes I’ve seen (or heard of) are related to the outflow of Mex. Immigrants from the state. This began long before SB1070 and is most likely ‘correlated’ to the economy than the current sentiments regarding immigration (legal or otherwise).

“And, I did not say I endorse or like the law.”

No worries, I didn’t assume that. Though, for the record, as a libertarian I find the law to be an affront to freedom (association, movement, blah, blah, blah), but not necessarily one that will result in ‘racial chaos’. OTOH, I think it remains to be seen what the affects of the law will be until it’s implemented.

Dan June 12, 2011 at 4:09 am

Temp unemployment benefits? Two years isn’t enough ?!??!?! TWO YEARS!?!?!?!? Infrastructure? They are blowing money on changing the cement street corners. All they did was lower one foot of corner to street level. They were already wheelchair accessible. Just, not as new looking. WASTE!!!!

Greg Ransom June 12, 2011 at 2:06 am

The leading & first American Keynesian — Alvin Hansen — was a stagnationist.

But I don’t expect any economist under 50 to know any history of economic thought of any kind.

Daniel Kuehn June 12, 2011 at 6:26 am

re: “A more relevant question is whether large-scale unemployment is the typical situation of the advanced capitalist economy, as the theme and prevailing tone of the General Theory imply, and as the stagnationists of the 1930s insisted.

Are Johnson and I reading the same General Theory here? The General Theory I read specifically said that society would not be typically characterized by dramatic unemployment, and that it would instead settle below potential but not particularly far below. The General Theory I read said: “Thus our four conditions together are adequate to explain the outstanding features of our actual experience;- namely, that we oscillate, avoiding the gravest extremes of fluctuation in employment and in prices in both directions, round an intermediate position appreciably below full employment and appreciably above minimum employment a decline below which would endanger life.

Now I can’t access that article, but perhaps you could quote it more extensively to provide some context on why it is exactly that Johnson has a different view. Keynes certainly thought deep unemployment is a problem. I wasn’t aware he thought it was the typical situation of the advanced capitalist economy. That sounds more like something Marx would say.

btw – in this same vein of putting utopianism or stagnationism in Keynes’s mouth – in your warm birthday wishes to our two great examples of British liberalism, I asked why you thought driving the marginal efficiency of capital to zero was consistent with eliminating scarcity of capital. Could you clarify how the one follows from the other?

George Selgin June 12, 2011 at 8:32 am

Keynes did briefly put forward a secular stagnation hypothesis–see pp. 307-8 of the General Theory in which he speaks of the decline in the marginal efficiency of capital scedule since the 19th century. It was largely based on this passage that Hanson and other Keynesian-influenced economists (e.g., Alan Sweezy) went on the develop the secular stagnation hypothesis at some length. In his Bogey of Economic Maturity George Terbough both connects the hypothesis to Keynes and refutes it most effectively.

As for DK’s wondering whether driving the MEC to zero is consistent eliminating the scarcity of capital, the answer is certainly yes: as planned investment increases, the MEC declines and the interest rate eventually reaches zero, which is what Keynes had in mind in speaking of eliminating the scarcity of capital (and thereby killing off the “rentier” class). Moreover Keynes believed that accomplishing all of this was a mere matter of printing lot’s of…oh, pardon me: I meant to say “shifting the LM schedule out.” There: now it’s scientific.

Daniel Kuehn June 12, 2011 at 8:40 am

Reducing MEC to zero certainly makes for a more capital-rich future than the present, but how is that “the end of scarcity” that Don has refered to in the past? It’s not. The cost of capital isn’t driven to zero – which we would expect in a post-scarcity world. It’s the marginal efficiency of capital that’s driven to zero.

“Less scarce”? Sure. Keynes provides an agenda for a world where capital is less scarce? But post-scarcity? No. I think this confusion arises from a confusion between the marginal efficiency of capital and the cost of capital, and it’s that confusion that leads to this misleading view that Keynes was a utopian.

George Selgin June 12, 2011 at 9:07 am

First of all, my apoligies for typing “Hanson” for Hansen.

As for Daniel’s point: first of all, claiming that you can drive the rate of interest on loans permanently to zero is utopian enough, whatever else it may mean. But Keynes did in fact speak of the possibility of eliminating (and not merely reducing) the scarcity of capital. On p. 376 of the GT he observes that “There are no intrinsic reasons for the scarcity of capital” (not “for the present degreee of capital scarcity”). And yes, he thought that you could make capital non-scarce. Inconsistent with the idea of a zero rate? Well, no: if Keynes had claimed a low spot price for “non-scarce” capital that would have been problematic. But he is saying in effect that capital will become a free good, like air or water. What’s the rate of interest on a free good? What’s the discounted PV of the income stream produced by a sum of non-scarce capital? Call it zero, or call it undefined. It hardly matters, for there’s no market for loans anyway. The stuff’s there for the taking. We are indeed not only in a utopia but in the most utopian of possible utopias.

Am I saying that this makes sense? Of coursxe not: it’s sheer poppycock. But it’s poppycock that is in fact in the General Theory, and that helped make the book such a smash, no matter how much Keynesians today would rather not admit it.

Daniel Kuehn June 12, 2011 at 9:19 am

The scarcity-value that he refers to in the concluding notes is the premium that the rentier can earn because of the rate of interest. Capital is scarce because the interest rate is higher than the marginal efficiency of capital (which is declining – as you cite from pg. 307 in your comment above). This “scarcity-value” as he calls it can be eliminated by a reduction of the rate of interest. This is the way he talks about scarcity in the entire passage – the scarcity that provides an income to the rentier. Don quotes these passages as if Keynes is saying that capital will be so abundant it will be dirt cheap – again, as I said above – confusing the marginal efficiency of capital with the marginal cost of capital which are two different concepts entirely.

The point is to separate the rentier from the entrepreneur. It’s well understood in the GT that there will still be a function for the entrepreneur because capital will still be scarce and will require insightful allocation by profit-seekers.

re: “But he is saying in effect that capital will become a free good, like air or water.”

No, no, no, no, no. You are reading the GT as if it had a loanable funds theory of the interest rate. This is wrong. The marginal efficiency of capital is not the marginal cost of capital. The marginal efficiency of capital is the discount rate that brings the marginal cost of capital and the marginal benefit of capital into equilibrium. The MEC can be zero and the MCC can still be very much non-zero. The rentier’s scarcity-value is eliminated in this case, but it is absolutely not a post-scarcity world where capital is free.

Maybe the euthanasia of the rentier was optimistic… and if you want, you can call that optimism “utopian”. But it was not the view that capital would be free.

Current June 12, 2011 at 11:26 am

> The MEC can be zero and the MCC can still be very much non-zero.

What do you mean by “Marginal Cost of Capital”? To me this sounds like the interest rate. If you don’t mean the interest rate then explain what you do mean.

So, what you seem to be saying is that the MEC can be zero while the interest rate is non-zero. In that case why would any business expand? If the MEC is zero but the interest rate is positive then anyone faced with the decision of whether to expand a production process or buy bonds will choose to buy bonds. Given that, how can such a situation be anything like permanent?

Daniel Kuehn June 12, 2011 at 9:37 am

Let me put it this way – if Keynes thought capital itself would have been so scarce as to be practically free, why did he take such pains to distinguish the rentier from the entrepreneur? Why use such vivid imagery as calling for the premature death of the rentier, but provide the skilled investor with the heroic task of “defeat[ing] the dark forces of time and ignorance which envelope our future”?

Some of the most repeated and most impressive rhetorical flourishes of the GT become non-sensical if your interpretation – that not only is MEC zero, but the cost of capital is also zero – is the right interpretation.

George Selgin June 12, 2011 at 9:40 am

And the line about there being “no intrinsic reasons” for the scarcity of capital? Does this not mean that capital needn’t be scarce–that it’s scarcity is contrived, and so can be undone by the right sort of policies? Was this not utopian thinking?

As for thinking in terms of loanable funds: the liquidity preference theory of interest is precisely that interest rates and the implied cost of capital neededn’t be nonzero in a world in which money itself isn’t in short supply. In Keynes’s theory, money is, indeed, the only good that’s in short supply. Everything else is in excess supply owing to the shortage of liquidity. Print more money and out comes the manna. In this framework, all goods prices are excessively high, capital included. But since Keynes doesn’t bother to suggest that the manna ever stops falling so long as the liquidity continues to expand, he essentially implies that we can have more of everything forever. And that indeed is what every standard IS-LM plot says: keep the LM shifting out, and i drops, eventually to zero, while y gets bigger and bigger.

I remember asking an econ prof at URI about that plot when he drew one on the board. “Why don’t we just keep on printing M until we get to Nirvana?” I asked. (I might have said “Utopia,” but I didn’t.) “Well, eventually it doesn’t work,” he replied. “How do we know when we’re at ‘eventually’?” I responded, at which point the guy just grimaced at me and went on with the lecture.

Hydraulic Keynesianism? No: it’s all in the GT, every last stinking bit of it.

George Selgin June 12, 2011 at 9:47 am

Do I, in light of other passages you quote from Keynes, suggest that Keynes contradicted himself? Very well then, I suggest that Keynes contradicted himself. Keynes was large; Keynes contained multitudes.

jjoxman June 12, 2011 at 10:09 am

Prof. Selgin, you took the words out of my mouth. In fact, this is an enduring indictment of the GT: it is self-contradictory.

I suggest to any Keynesians that they read Hazlitt’s “Failure of the New Economics.” It is a topic-by-topic, nearly line-by-line analysis of the GT. It is fair, but merciless.

When, oh when, will the Keynesian diversion end?

Daniel Kuehn June 12, 2011 at 10:10 am

A contradiction within the same paragraph?

Maybe Keynes was that dense. But maybe it sounds like a bizarre claim because it’s a poor interpretation.

Methinks1776 June 12, 2011 at 4:55 pm

One can usually see things in a much better light if one only re-interprets these things to mean something other than what they actually do.

Well done.

George Selgin June 12, 2011 at 10:35 am

Well, I have the advantage, Daniel, of having arrived at the same “poor” interpretation of Keynes as a large number of his most fervent followers, many of whom penned their interpretations during Keynes’ lifetime, and so might have had those interpretations repudiated by him. Instead Keynes endorsed them, or kept silent.

And yes, I believe Keynes was capable of contradicting himself in a single paragraph. I regard the entire General Theory as a mixture of disinformation (e.g., it’s treatment of “classical” economics), hyperbole (see above), intentional obscurity (“liquiduty preference,” “marginal efficiency of investment” et hoc genus omni, and sheer muddle. In short, I hold it in contempt for the very reasons that led Samuelson to regard it as “a work of genius.”

Justin P June 12, 2011 at 12:05 pm

*like*

Current June 12, 2011 at 11:12 am

Daniel, George,

Over at the Cobden Centre I have an article about this “Zero MEC” controversy.
http://www.cobdencentre.org/2011/06/was-keynes-economics-utopian/

What Daniel is saying here is reasonable enough. He’s talking about how the “productivity premium” on the interest rate may be eliminated over time. In that case we would be left with an interest rate determined entirely by time-preference. If that were to happen then perhaps to some the “rentier” would be “euthanaised”. But, that would not be a zero interest rate or a zero MEC. However, in general equilibrium there would be no difference between the MEC and the interest rate.

But, this isn’t what Keynes says, he’s talking about the MEC falling to zero in a real economy. That is wrong. When Daniel is reading “MEC” here he’s interpreting it to mean “Interest rate minus MEC”.

George Selgin June 12, 2011 at 4:43 pm

An interesting article. But I don’t see why merely eliminating the “productivity” component of the rate of interest would suffice to wipe our the rentier class. Hense I think Keynes was not inconsistent in connecting the elimination of the rentier with MEC=r=0. Secular stagnation would eventually wipe-out the productivity premium all by itself; monetary expansion would take care of the rest, that is, of the (il)liquidity component.

Don Boudreaux June 12, 2011 at 4:44 pm

Yep.

Current June 12, 2011 at 5:09 pm

“But I don’t see why merely eliminating the ‘productivity’ component of the rate of interest would suffice to wipe our the rentier class”

It depends on what you consider the “rentier class” to be. Bukharin argued that even if we have productivity interest then the rentier class hasn’t been eliminated. I don’t know if that’s Keynes’ view or Dan Kuehn’s view. But, it seemed to me that Dan Kuehn is essentially arguing for the end of any “productivity premium”.

I agree that your interpretation is closer to what Keynes actually says. But, what I’m trying to do here is to criticise Keynes from a generous point of view. I’m looking at things from the viewpoint of “let’s begin by assuming that Keynes wasn’t a moron” because I think that’s the best way to proceed. If I do otherwise then Keynesians will simply say “of course Keynes didn’t believe something so stupid” and give a more generous explanation.

The point of my article is that even if you give Keynes the most generous possible interpretation it’s all still a mess.

George Selgin June 12, 2011 at 5:28 pm

Indeed. I think the article entirely sound, but am inclined to think that Dan’s view is simply his own, rather than a compelling statement concerning what Keynes’ really meant to say.

Current June 12, 2011 at 6:57 pm

Fair enough,

When I wrote: “It may also be that what Keynes was thinking of here was something slightly different, not the MEC itself but the difference between the MEC and the rate of interest.” I should have said “Daniel Kuehn”, not Keynes.

vidyohs June 12, 2011 at 7:14 pm

I don’t think either of you grasp the true nature of your debate/discussion with DK, he is smarter than you, therefore you are wrong.

Jonathan M. F. Catalán June 12, 2011 at 1:42 pm

I don’t know whether Keynes was a stagnationist or not, and I certainly have no intention of commenting either way (and, I don’t know The General Theory and its interpretations as well as either George, Daniel, or Don), but it doesn’t seem to me that the quoted passage from Johnson’s essay calls Keynes a stagnationist. The quote says that both Keynes and the stagnationists saw large-scale unemployment as the typical situation in advanced capitalist economy.

To put it into perspective (although, probably to a very different degree), it’s like saying that both full reservists and fractional reserve free bankers see the present banking system as a cartelized institution. That both agree on that particular subject doesn’t mean that full reservists and fractional reserve free bankers are one in the same.

I’m not defending Keynes, I just think that the interpretation of the above quoted passage is erroneous.

DG Lesvic June 12, 2011 at 6:35 pm

Isn’t Prof. Selgin himself something of a Keynesian, a Keynesian Austrian, sharing the Keynesian fear of monetary contraction, saving money in a mattress, withdrawing money from circulation, and of “sticky wages” failing to fall in concert with the fall in the quantity of money in circulation, and with the consequence then of chronic massive unemployment?

Don Boudreaux June 12, 2011 at 7:05 pm

DG Lesvic: Please learn some more about economics before you pronounce upon it with such embarrassing self-assuredness.

Daniel Kuehn June 13, 2011 at 6:40 am

I figured that was a compliment :)

DG Lesvic June 13, 2011 at 9:53 am

Daniel,

It was just what Selgin and Boudreaux took it for, a criticism.

Could you respond to it with the “brains and knowledge and capacity to reason” that Boudreaux credited you with, or do I drive you nuts too?

George Selgin June 12, 2011 at 6:59 pm

Oh stuff it, Lesvic. You don’t know diddly squat about the history of monetary economics, or you’d stop embarrassing yourself with this silly refrain you keep heckling me with. Read Yeager’s “The Keynesian Diversion,” if you want to learn something, and then consider whether you want to keep insisting that anyone who thinks that money growth is ever desirable, or that prices and wages don’t always adjust immediately to their market-clearing levels, must be a “Keynesian.”

vidyohs June 12, 2011 at 7:17 pm

And, this is what I love about visiting the Cafe.

Good on you Don!

Good on you DG Lesvic!

And, good on you George!

DG Lesvic June 12, 2011 at 7:32 pm

Apparently I’m right, Selgin is something of a Keynesian Austrian, and so is Boudreaux, fearing dat ol’ debil, monetary contraction.

To paraphrase FDR, we have nothing to fear from monetary contraction but fear of it itself. That is to understand, of course, that the contraction was market generated, the action of the market itself, even if in reaction to interference with it.

And when you young whippersnappers in economics are ready to “learn more about economics before pronouncing upon it with such embarrassing self-assuredness,” let me know. This old-timer at it will be glad to oblige. And then, if you’ve grown up enough, you may learn, like the proverbial youngster who thought he knew it all, how much his elders have learned

Jonathan M. F. Catalán June 12, 2011 at 9:18 pm

Then most Austrians are what you call “Keynesian Austrians”.

DG Lesvic June 12, 2011 at 11:51 pm

I haven’t counted but I would guess that is so.

DG Lesvic June 12, 2011 at 11:59 pm

Jonathon,

The “wages are sticky” notion that Selgin and the Keynesian Austrians subscribe to was the basis of Keynes’ famous “money illusion” theory of unemployment, and of the “demand management” or “monetary equilibrium” theory that has not only driven interventionist public policy in Western Europe and America over the last 75 years, but infected even the Austrian School, in the persons today of Selgin, White, Horwitz, Rizzo, Garrison, O’Driscoll, Woolsey, and, now, it would seem, Boudreaux. It is inimical to the Austrian cause and must be confronted, whether Selgin and Boudreaux like it or not.

DG Lesvic June 13, 2011 at 12:01 am

I would add that the “wages are sticky” notion is that the market actors are mad, and is better characterized as Madman than merely Keynesian Economics.

Jonathan M. F. Catalán June 13, 2011 at 12:10 pm

DG Lesvic,

Keynes’ theory of wages is markedly different from Selgin’s, or any other Austrian’s. That many Austrians believe that prices don’t adjust perfectly is not the same thing as endorsing Keynes’ theories — nor is the idea of price “stickiness” Keynes’. It predates Keynes. To equivocate these Austrians with Keynes is disingenuous.

If you want to “confront” what you deem an error then point out why it’s an error, but equivocating them with Keynesians does not make them wrong, and is itself wrong.

For what it’s worth, the notion that the wage market clears in my opinion runs contrary to Austrian economics. I am not saying that the alternative is chronic unemployment. What I’m saying is that equilibrium is not a market reality; it’s a (constantly shifting) point towards which the economy tends toward. Wages will adjust over time, but Austrians are disequilibrium economists and this should also reflect on their theory of wages.

DG Lesvic June 13, 2011 at 12:12 am

Jonathan,

Here, I hope, is a link to Macro Schmacro, and, immediately following it, The Cause and Cure of the Depression.

Sometimes the link works and sometimes it doesn’t. If it just takes you to the front of the book, scroll down a bit to Book Two, and to the table of Contents following.

http://econotrashtalk.org/#Macro_Schmacro_

George Selgin June 12, 2011 at 7:39 pm

Don’t hold your breath, old timer.

DG Lesvic June 12, 2011 at 7:47 pm

I’m not. I’m just holding my sides.

DG Lesvic June 12, 2011 at 7:54 pm

And, Daniel, eat your heart out.

Don’t you wish you could elicit this kind of reaction?

DG Lesvic June 12, 2011 at 8:32 pm

And, by the way, while you’re telling me I should read more economics, and read Leland Yeager, you could have told it too to Ludwig von Mises, who apparently embarrassed himself too. And you could tell it to some of the other regulars here who agree with me. I get a little mixed up between the V boys, Vid and Vike, but at least one if not both of them agree with me, and so does Sam, and I’ll stand with those boys, and Mises, against Keynes and his wobbly adversaries in the Austrian School.

DG Lesvic June 12, 2011 at 10:03 pm

“The Leftist…economic policy…owed its ascendancy in part to Keynes…and in part to the heritage of war and war economy. The triumph was also furthered by the fiction that the Allied victory over the Fascist countries was tantamount to the victory of an anti-Fascist (that is, predominantly socialist and progressive) front over the bloc of powers mistaken for ultra-conservatives, reactionaries, and monopoly capitalists. The blindness with which collectivist Russia was accepted as a member of this anti-Fascist front was matched by stubborn refusal to accept any proof that German National Socialism had…paralleled Soviet Russia as a textbook example of socialism in full bloom and had…more than one ancestor in common with ‘democratic’ socialism. Those who, like F.A. Hayek and the author of this book, were so deplorably tactless as to explode this myth know from experience what it means to challenge a popular misconception.”

Wilhelm Röpke, A Humane Economy, Pp 21-25

And, in the Austrian School, too, apparently, you mustn’t tell the emperor he has no clothes.

Slappy McFee June 13, 2011 at 12:20 pm

Anybody want to clue me in on what a “stagnationist” is? I tried the google but it was of little help.

Don Boudreaux June 13, 2011 at 12:28 pm

Someone who believes that economic development has gone as far as it can possibly go – that economic growth won’t continue because human wants have largely been satisfied; there’s nothing more to invent, produce, improve, demand. So the economy settles into a ‘steady state’ in which it continues producing as best as possible the full, if limited, array of goods and services that people want.

maximus June 13, 2011 at 1:15 pm

In other words, someone who believes in a general equilibrium in the macro economy.

DG Lesvic June 13, 2011 at 1:53 pm

Response to Jonathon Catalan

Since you agree that the market tends toward equilibrium, why would you interfere with it? Would disequilibrium be better?

Jonathan M. F. Catalán June 13, 2011 at 4:45 pm

Who said anything about interfering with anything? We’re talking about Austrians who don’t believe in perfect price flexibility. Why are you changing the subject?

DG Lesvic June 13, 2011 at 3:22 pm

Jonathon,

Giving poor old George a rest for the moment, the indisputably Keynesian knock on the market is that it falls short of perfection, which implies that Keynesian interference with it would achieve perfection.

But of what does the market’s “imperfection” consist?

Change.

Since a new equilibrium point is constantly being established before the previous one could be reached, the market is constantly in disequilibrium, and short of “perfection.” So, the “perfection” to which the Keynesians aspire could be achieved only by ruling out change, action, and life itself, and would be the perfection, the final equilibrium and rest of the graveyard.

Since the market’s tendency toward equilibrium is the best we can realistically hope for, again, I ask, why would you interfere with it?

Jonathan M. F. Catalán June 13, 2011 at 4:47 pm

And I’ll ask you again; what does anything you’re saying here have to do with what we were discussing before? You tried to falsely equivocate some Austrians with Keynesians on the basis of their belief in imperfect price flexibility. I can only assume that on this point you’ve conceded your error, because you’ve felt it proper to completely change the subject and discuss something that has nothing to do with the topic at hand.

Daniel Kuehn June 13, 2011 at 4:54 pm

re: “Since a new equilibrium point is constantly being established before the previous one could be reached, the market is constantly in disequilibrium, and short of “perfection.” So, the “perfection” to which the Keynesians aspire could be achieved only by ruling out change, action, and life itself, and would be the perfection, the final equilibrium and rest of the graveyard.”

By this definition I’m no Keynesian… and neither is any other Keynesian I’ve ever met.

DG Lesvic June 13, 2011 at 6:10 pm

Jonathon,

You’re equating “sticky prices” with “imperfect price flexibility.”

All human action is imperfect, but not all “sticky.”

Imperfection is an ineluctable fact of life and not a problem that can be fixed.

According to the Keynesians, and some Austrians, stickiness is a problem that can and should be fixed.

Otherwise, why even talk about it?

The Keynesians and those Austrians both say that it can be fixed, and, by the same method, increasing the money supply.

There are other Austrians, such as myself, who don’t agree that there is any such problem, and don’t believe in artificially increasing the money supply under any circumstances.

It is certainly closer to the truth to call those Austrians who agree with the Keynesians on this vital matter Keynesian Austrians than not to distinguish at all between those who are nearer and further from them.

Daniel,

The whole interventionist position is that the market falls short of perfection, and that judicious interference could achieve the perfection that eludes the market. But the “imperfection” of the market consists of the constant change within it, keeping it from equilibrium, and perfection. So the perfection that judicious intervention could bring about implies the cessation of change.

Here is my summation of the whole issue:

General Equilibrium Theory

The interventionists’ knock on the market is that it falls short of perfection, which implies that their judicious interference with it could achieve perfection.

Of what does the market’s “imperfection” consist?

Change. Since a new equilibrium point is constantly being established before the previous one could be reached, the market is constantly in disequilibrium, and short of “perfection.” So, the “perfection” to which the interventionists aspire could be achieved only by ruling out change, action, and life itself, and would be the final state of rest and equilibrium, and the “perfection,” of the graveyard.

It is essential to mathematical and socialist “economics.” Since it is by leading the rest of us into an uncertain future that the entrepreneur earns his profit, to discredit profit you must deny the uncertainty of the future. You must posit the final state of rest and equilibrium not as a mere imaginary construction but a real state of affairs, in which supply/demand relations were unchanging and constant, like those between inert mechanical elements, and from which you could calculate the change in one that a change in another would bring about, and remake the economic landscape to precise specifications. So there’d be no more need for entrepreneurs and their judgment, but only for technocrats and their calculations.
It is one thing to imagine a world of no further change and another to base any useful calculations upon it. The interventionists have never troubled themselves with that problem. They have simply leaped from the premise that the market was imperfect to the conclusion that their interference with it would be perfect.

Strictly speaking, the Austrian School opponents of this so called General Equilibrium Theory are general equilibrium theorists themselves, assuming equilibrium throughout and not just within limited segments of the market. The real difference is that, to the Austrians, equilibrium is not a real state of affairs but merely a theoretical concept. But, though purely imaginary, it is an essential starting point for analysis. As Rothbard explained, the final equilibrium position is “like the mechanical rabbit being chased by the dog. It is never reached in practice and is always changing, but it explains the direction in which the dog is moving.”

All that an economist can say about equilibrium is that the market tends toward it. Period. He cannot say to what extent nor how fast, just that it tends toward equilibrium and interference with it toward disequilibrium.

No more, no less.

Jonathan M. F. Catalán June 15, 2011 at 12:04 am

You’re equating “sticky prices” with “imperfect price flexibility.”

What’s the difference? Now, answer that question both for the Keynesians (and here you might as well differentiate between different economists, as well) and the Austrians you are accusing of being ‘Keynesian’.

According to the Keynesians, and some Austrians, stickiness is a problem that can and should be fixed.

This is absurd both for the Keynesians and the Austrians. Neither purport to be able to “fix” sticky prices. The former might have a solution to alleviate the problems of stick prices, and the latter believe that an unintended consequence of free banking would be to avoid problems of sticky prices during monetary contraction (that results from an increase in the demand for money).

The Keynesians and those Austrians both say that it can be fixed, and, by the same method, increasing the money supply.

It’s convenient to ignore the nuances, right? Perhaps it’s just that you don’t really know what those nuances are. Tip: Making generalizations like this doesn’t help your case, in fact it undermines it.

DG Lesvic June 14, 2011 at 2:21 pm

Jonathon and Daniel,

Here’s a new version of General Equilibrium Theory.

I hope you’ll let me know what you think of it.

General Equilibrium Theory

The interventionists’ knock on the market is that it falls short of perfection, which implies that their judicious interference with it could achieve perfection.

Of what does the market’s “imperfection” consist? Change. Since a new equilibrium point is constantly being established before the previous one could be reached, the market is constantly in disequilibrium, and short of “perfection.” So, the “perfection” to which the interventionists aspire implies the cessation of change, action, and life itself, and would be the “perfection” of the graveyard.

That is the essence of mathematical and socialist “economics.” The final state of rest and equilibrium is no longer an imaginary but a real state of affairs in which supply/demand relations are unchanging and constant, like those between inert mechanical elements, and from which you can calculate the change in one that a change in another would bring about, and remake the economic landscape to precise specifications. So there’s no more need for the profit system, for there’s none for entrepreneurs predicting an uncertain future, but only for dictators deciding what it should be and technocrats calculating the macro-movements to it.

It is one thing to imagine a final state of rest and equilibrium and another to base any useful calculations upon it. The interventionists have never troubled themselves with that problem. They have simply leaped from the premise that the market was imperfect to the conclusion that their dictatorship would be perfect.

Strictly speaking, the Austrian School opponents of this so called General Equilibrium Theory are general equilibrium theorists themselves, assuming equilibrium throughout and not just within limited segments of the market. The real difference is that, to the Austrians, equilibrium is not a real state of affairs but merely a theoretical concept; but, though purely imaginary, an essential starting point for analysis. As Rothbard explained, the final equilibrium position is “like the mechanical rabbit being chased by the dog. It is never reached in practice and is always changing, but it explains the direction in which the dog is moving.”

Economics cannot tell us how fast the market approaches equilibrium nor how close it comes, for those are quantitative issues beyond the scope of economics, and matters of opinion, not economic law. All that economics can say is that the market tends toward equilibrium and interference with it toward disequilibrium.

No more, no less.

DG Lesvic June 14, 2011 at 4:56 pm

Boys, Here’s yet another version.

General Equilibrium Theory

Since a new equilibrium point is constantly being established before the previous one could be reached, the market is constantly in disequilibrium, and therefore short of the perfection which, supposedly, a judicious intervention could achieve. But since the cause of the imperfection is change, perfection implies the cessation of change, action, and life itself, and would be the “perfection” of the graveyard.

That is the essence of mathematical and socialist “economics.” The final state of rest and equilibrium is no longer an imaginary but a real state of affairs in which supply/demand relations are unchanging and constant, like those between inert mechanical elements, and from which you can calculate the change in one that a change in another would bring about. So, with a socialist dictator deciding what the future should be and technocrats planning for it with mathematical precision, there’s no more need for the judgment nor profits and losses of entrepreneurs.

So, Marx, booted out of the house, has slipped back in through the back door of this Keynesian, New Welfare, Neo-Classical Synthesis (of micro and macro), or General Equilibrium Theory, the theory that it is not just general but realizable.

Strictly speaking, the Austrian School opponents of this so called General Equilibrium Theory are general equilibrium theorists themselves, assuming equilibrium throughout and not just within limited segments of the market. The real difference is that, to the Austrians, equilibrium is not a real state of affairs but merely a theoretical concept. But though purely imaginary, it is an essential starting point for analysis. As Rothbard explained, the final equilibrium position is “like the mechanical rabbit being chased by the dog. It is never reached in practice and is always changing, but it explains the direction in which the dog is moving.”

Economics cannot tell us how fast the market approaches equilibrium nor how close it comes, for those are quantitative issues beyond the scope of economics, and matters of opinion, not economic law. All that economics can say is that the market tends toward equilibrium and interference with it toward disequilibrium.

No more, no less.

It is one thing to imagine a final state of rest and equilibrium and another to base any useful calculations upon it. The new theorists have never troubled themselves with that problem. They have simply leaped from the premise that the market was imperfect to the conclusion that their dictatorship would be perfect, which was a leap of Neo-Classical Keynesian faith, not economics, of madmen, not economists.

Troy Camplin June 15, 2011 at 2:42 pm

This is almost exactly correct. Except for those influenced primarily by Lachmann. They reject even using equilibrium in their models. They are right to do so.

Troy Camplin June 14, 2011 at 5:43 pm

I have been recently diverted from reading and commenting on Keynes’ General Theory, but if anyone is interested, I did comment almost chapter by chapter for a while. Once I am finished with a few projects that demand my immediate attention, I will return to GT. So far, my impression is that it is mostly utter nonsense — mostly mathematized folk economics. It is understandable why the average person would buy into Keynes, since they already hold those beliefs, as unscientific as they are, and it is understandable by the average politician would buy into Keynes, since they are almost completely ignorant of economics themselves, and his ideas help them “solve” economic problems by appearing to do something that makes sense to the masses who believe in folk economics too. It is our gut instinct that, when there is a problem, we must DO something. Never mind that what we did last time created the crisis this time.

Keynes should be kept far, far away from any undergrad student, because all he does is reinforce the folk economics they walk in the door with. (Actually, he should be kept far, far away from almost everyone, except those taking a history of economics course in grad school.) I will note that one of our most famous Keynesians, Krugman, does not use Keynes at all in his economic geography/spatial economics work, but only uses it in areas of economics in which he is not specialized — where he is, sadly, relying mostly on his own folk economics. He needs to stick with his areas of specialty and stop making a fool of himself talking about areas in which he is embarrassingly ignorant and misinformed (by Keynes).

DG Lesvic June 15, 2011 at 5:23 pm

Jonathon and Troy

First, Jonathon

I inferred from your use of the two different terms, “sticky prices” and “imperfect price flexibility,” that you saw a difference between them.
Now, from your question, “What’s the difference?”, I infer that you see no difference, that, to you, they are the same. So, for the sake of clarity, I suggest that we stick to the one term or the other, and I presume that “sticky prices” would be alright with you.

The question, first, are there sticky prices, and, if so, what, if anything, should be done about them?

As I recall, you agreed that the market tended toward equilibrium, but never reached it, for a new equilibrium position was constantly being established before the previous one could be reached.

So, while the market never reaches equilibrium, it constantly approaches it

The question of “sticky prices” then: how fast does the market approach equilibrium and how close does it get?

Those are quantitative issues beyond the scope of economics, and matters of opinion, not economic law.

You may think that the workers are too slow in lowering their wage demands, that they’re waiting for better offers that will not be forthcoming.

Someone else may think they’re too quick to do so, that they would have been better off holding out for higher wages.

But both of them agree on one thing. They know best. Not the workers themselves, not the market, but socialist superman, whether he calls himself a Keynesian or an Austrian.

No real Austrian, by my definition, thinks of himself as Superman. Only Keynesians, or confused Austrians, Keynesian Austrians, do so.

Troy,

As for Lachmann, here’s an excerpt from my essay, The Cornerstone of Economics.

Since the market always tends toward equilibrium, and interference with it toward disequilibrium, the market is the optimum and any interference with it a departure from the optimum.

But, given entrepreneurial error and disequilibrating as well as equilibrating action in the market, the Austrian School has been perplexed by the possibility of the disequilibrating outweighing the equilibrating, and the market tending more toward disequilibrium than equilibrium. But since it tends toward a final state of rest (see Mises, Human Action, P 245), it must tend toward equilibrium, for it could not rest at disequilibrium.

Entrepreneurial error doesn’t change the fact that the market tends to correct it, and that interference with the market is interference with the correction.

The possibility of market failure is immaterial. Economics is not a science of possibilities, for anything is possible, nor of certainties, for nothing is certain. It is a science of practical and reasonable assumptions, and the futility of human action is not one of them. The possibility of getting hit by a truck if we get out of bed in the morning doesn’t mean we shouldn’t get out of bed. To live we must act, to act, presume success, and, to analyze our action, a universe conducive to it, tending not toward disequilibrium and chaos, but equilibrium and order.

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