F.A. Selgin vs. J.M. Skidelsky

by Don Boudreaux on August 5, 2011

in Economics, State of Macro

Here’s a link to George Selgin’s and Jamie Whyte’s debate with Lord Skidelsky and Duncan Weldon on the virtues and (in my view, overwhelming) vices of Keynesian economics.

I’m glad that George is on the side of sound economics.

I’ll offer further thoughts on this debate in subsequent posts.

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{ 43 comments }

James Wilson August 5, 2011 at 3:44 pm

I’m only recently becoming familiar with Selgin’s work. I appreciate that he seems to be uninterested in libertarian ideology. It makes his economic case for things like free banking all the stronger.

Don Boudreaux August 5, 2011 at 3:48 pm

George is a scholar’s scholar. Always has been.

Greg Webb August 5, 2011 at 3:53 pm

Professor Selgin is also a good debater!

Lee Waaks August 5, 2011 at 4:41 pm

I read Selgin’s book on Free Banking and Horwitz’ book on Austrian macro — those two books transformed me from a Rothbardian into a… neo-Austrian? But whatever G. Selgin calls himself today, judging by the debate, he is still four square for freedom. As I wrote in a previous post, Skidelsky resorted to the ad miseracordiam argument to support his case for Keynes. I think if Selgin had the opportunity to really fire away at Team Keynes, he could have focused on what he he called (in his recent post on the Free Banking blog) the “rotten heart” of Keynesianism: the notion that government spending can cure a recession/depression. Keynesianism is wrong but it is intuitively plausible, and it’s a tough job explaining the counterintuitive Hayekian ideas in a short debate. But Team Selgin did great under the time constraints.

Metryll August 9, 2011 at 2:50 pm

Just out of curiosity could you cite :

#1 A major crisis that was not successfully handled trough spending in 1946-1973 period (oil crisis included).

#2 A major crisis that had been successfully trough spending cuts and tax reduction in 1973-2011 period.

juan carlos vera August 5, 2011 at 4:31 pm

I’m glad too…

juan carlos vera August 5, 2011 at 4:36 pm

I have studied his theory of free banking in my post degree in economic at UdeSA, Argentina…

Slappy McFee August 5, 2011 at 4:58 pm

Make sure that after you listen to the debate, you look to the right hand side of the page and read the blog posts associated with the debate. Quite interesting to say the least.

Chucklehead August 5, 2011 at 10:17 pm

Keynes v Hayek, and why Keynes had to win
Look for George Selgin’s responses to the blather.
http://www.taxresearch.org.uk/Blog/2011/08/04/keynes-v-hayek-and-why-keynes-had-to-win/

tdp August 7, 2011 at 12:22 am

I see none. I only see a bunch of leftist horseshit that repeats the idiotic fallacy that only the rapacious rich corporations benefit from an economy without 80% tax rates and a nanny-state taking care of everything. One of those ignorant morons went so far as to reference Naomi Klein. I only wish I could direct her to Johan Norberg’s essay: “The Klein Doctrine: The Rise of Disaster Polemics”.

tdp August 7, 2011 at 12:25 am

The quote from Naomi Klein, by the way, is so mind-bogglingly ignorant that it has to be read to be believed…she says Hayek adored totalitarian far-right regimes and accuses him (as she did Milton Friedman) of supporting Augusto Pinochet.

Chucklehead August 7, 2011 at 3:16 am

Since you didn’t care for that link, try this one. Robert P Murphy sings Sweet Caroline http://www.youtube.com/watch?v=i0e2n7OxeNc&feature=related
Could this be the Mises Institute answer to Keynes Hayek videos?

Daniel Kuehn August 5, 2011 at 4:58 pm

I thought both sides did a decent job in explaining their own position but took sloppy short cuts and pot-shots in characterizing the other’s position.

Lee Waaks August 5, 2011 at 7:08 pm

I agree with that. What statements in particular from Selgin/Whyte?

Daniel Kuehn August 6, 2011 at 8:02 am

Selgin’s claim that Keynesians don’t care how the money is spent, Whyte’s reference to the 1970s as a failure of Keynesian policy, the whole post-WWII claptrap, Whyte had some line that was to the effect of “they think government knows better than you”, etc. A lot of it was like a mises.org comment thread.

The other side had it too – the liquidationist accusations, and the worst of all was Skidelsky’s (or maybe the other guy’s?) statement of “who would you rather have in charge of the economy” – which was an off-putting question in and of itself. I don’t want anyone “in charge” of the economy.

Miles Stevenson August 6, 2011 at 8:53 am

+1

Martin Brock August 6, 2011 at 11:42 am

We’re discussing a 20 minute radio broadcast deliberately dumbed down for a popular audience between ideologues chosen for their polar opposite locations on an ideological spectrum, a media circus in other words, not a conference of academic economists. Selgin played his role well, but I didn’t expect to learn a lot.

The whole post-WWII claptrap needs a lot more elucidating. Only last week, someone in another forum asked, “weren’t wars good for the economy in the past?”. This question was completely serious, and we discussed the subject for a while. This sort of question is most important for all of the related questions is raises. What does “good for the economy” mean exactly?

Lee Waaks August 6, 2011 at 3:46 pm

I believe that Keynesians would like the money to be well spent (in a rough sort of way, I suppose), and even give a nod to Public Choice to show they are not naive about how politicians will behave, but maybe Selgin & Co., in a short-handed way, were saying that when push comes to shove, Keynesians will “vote” for inefficient spending over little or no spending at all. The Keynesians, as Skidelsky argued, live in the real world in which political orders are often threatened by unruly unemployed workers who are all too ready to be led by the next Hitler-in-waiting. I’m sure you picked up on that moral blackmail and bridled a bit yourself. And you were probably offended by Skidelsky’s suggestion that Hayek & Co. don’t care about the unemployed. But distancing yourself from a few lousy arguments doesn’t change the fact that even in a world without Hitler, Public Choice considerations must be dealt with in the real world.

Michael E. Marotta August 5, 2011 at 5:49 pm

My hobby is numismatics. I do not collect; I write. The “art and science that studies the forms and uses of money” provides ample historic evidence to support the free market. That said, I wonder how it works to view the government as only a large actor (the largest, perhaps). In other words, if we were in capitalist utopia and the largest entities were multinational corporations, the largest of them did this or that, invested here, but not there, created different moneys, including fiduciaries (gold coins; interest notes; voting shares; etc., etc) , how would the Hayekian analysis be different?

It is easy for us libertarians to blame the government, but any individualist will tell you that “the man in the grey flannel suit” can be privately employed.

In the capitalist utopia The Driver by Garet Garrett, 1922. (suggested as a lost precursor to Atlas Shrugged) Henry Galt’s solution is for the large enterprises to follow the Keynesian Formula: austerity and savings in good years with investment spending to offset downturns.

John Sullivan August 5, 2011 at 7:52 pm

In an unregulated market, there wouldn’t be downturns as we have come to know them. Keynesian economics is a method offered to deal with the resulting business cycle caused by the regulations of central banking pertaining to ‘money’ and its supply. It methods don’t create wealth, but claim to smooth out the fluctuations inherent in business cycles.

One can argue against central banking and all that it entails, but is that an argument against Keynes? Or do you have to accept the Keynesain premise that their theories are taking central banking for granted. In other words, do you have to accept their premise in order to debate them?

??

Chucklehead August 5, 2011 at 10:07 pm

Multinational corporations can not use force to make me participate in their scheme, which partially insulates me from it.
“the Keynesian Formula: austerity and savings in good years with investment spending to offset downturns.” Saving when times are good to carry you through bad times is not Keynesian. Purchasing in a down market is not Keynesian. Keynesian is spending on anything (build Pyramids) in a downturn, not investing in future business. I have yet to hear a Keynesian preach austerity at any time.

John Sullivan August 5, 2011 at 7:59 pm

It will take considerably more than an intellectual argument to do away with central banking and governmental control of money, unless that argument can convince a couple of hundred million people here.

What is useful though, is that politicians like to stay in office. They will ultimately have the incentive to manage their monopoly with caution.

Methinks1776 August 5, 2011 at 8:16 pm

They will ultimately have the incentive to manage their monopoly with caution.

Without question, this is the funniest thing you have ever written.

John Sullivan August 6, 2011 at 7:58 am

Yes, it’s very funny, but in the ‘long run’, it’s true.

Most politicans and people don’t even recognize that legal tender laws are monopolistic. They don’t see the commodity ‘money’ as being monopolized. But, from an historical perspective, the politicians have kept the money stable enough for civilization to prosper if we compare our nation to others. This is only becasue the incentives here are for reelection whereas the incentives in the second and third world countries are more bluntly aligned with personal enrichment and aggrandizement.

Because the distribution of power in our country is more shared, the lure of power is not as strikingly vulgar as elsewhere.

The ‘incentive’ to adopt sound monetary policy is there. The cause and effect principles that underwrite it may be too complex for both the people and the politicians to grasp compared, for example, to some of you here, but there is no shoratge of qualified economists that the government can hire and who are available to teach the people.

The voters change their politicans if they’re unhappy. Often they don’t know why. Knowing why often doesn’t matter. Good economics works and bad economics doesn’t. It is impossible for bad economics to work secretly, if the people aren’t told the truth. The bad results of bad economics will ultimately prevail and the people will replace their leaders. That might not know the reasons why, but they will replace them nonetheless.

Machiavelli would say that the politican has the incentive to learn about economics in order to prolong their tenure of power.

Ken August 6, 2011 at 1:09 pm

“Yes, it’s very funny, but in the ‘long run’, it’s true.”

How long is this “long run”? For close to a century fiscal mismanagement has characterized politicians’ actions. Multiple generations of politicians have committed fiscal fraud.

Regards,
Ken

Methinks1776 August 6, 2011 at 4:28 pm

John,

The long run is here. Look at Europe, then turn your attention to the S&P downgrade. As an aside, I don’t think the ratings agencies are as important to sovereign debt. We suffer from the least disgusting of group syndrome and the market ultimately determines the rates. I point to it only because it’s saying what the bond market already knows.

Politicians don’t care about being in office in the long run. They pay off their cronies, make connections and leverage their government connections after leaving office. They can steal enough from their constituents in a very short period of time to enjoy a lifetime of comfort. You have a very rosy picture of politicians. The people may replace their leaders, but the new leaders have not been able to cut the entitlements put into place by the old leaders.

It is you will be stuck with the long run. In the long run, they’ll be fine and you’ll be broke.

vikingvista August 7, 2011 at 4:52 am

Methinks–

Some people don’t grasp the incentives inherent in ANY violent monopoly. Those who do, see the humor.

Greg Webb August 5, 2011 at 8:41 pm

John, the op/ed article by David Malpass was good. Thanks for mentioning it because I had not planned on reading the WSJ today.

Good intellectual arguments are how change begins. Otherwise, the ideas of Ludwig von Mises would be forgotten by now and not being used to challenge entrenched Keynesianism.

Your comment that “They will ultimately have the incentive to manage their monopoly with caution” is false based on the Federal Reserve System’s poor record in managing the money supply since its founding in 1914.

John Sullivan August 6, 2011 at 8:36 am

Perhaps your standards and expectations for the human race surpass my own. Perhaps you think economic understanding would suffice to replace the human desire for power, where I don’t, so my aim is far lower than yours. I see our history as about as stable as we could have bargained for.

Perhaps you’re more of a utopian than me. I think it was Dostoevsky who wrote, in “The Possessed” I think, that the anarchists started their argument from the position of pure human liberty, and acheived it with pure tyranny.—or something along those lines. Many people have struggled with his point, which was that if there existed a ‘police power’ that could promise us with perfect liberty and equality under law, it would not choose to, and that if we empowered the masses to live with perfect liberty, they would not want to either.

From the perspective of maintaining power, central banking allows for its consolidation and perpetuation. It’s the first prerogative of power–to control the printing press and all that it encompasses, and to outlaw competition in money.

This allows the poltician to buy votes by offering the people things it can’t afford and who won’t agree to higher taxes. The voters demand the social services more than they suffer from the method by which they pay for them–inflation. However, if the inflation becomes too great, or if it affects the smooth functioning of the economy in other ways, they’ll replace their leaders as I described above.

The bottom line is that the leaders will be ‘ultimately’ replaced if they, knowingly or not, pursue bad economics, so the poltical incentive exists to learn about economics.

The Soviet Union didn’t implode because of Ronald Reagan, it did because it pursued bad economics for half a century. But the men who ran that country lived so well that they didn’t care about what would happen in the long run. Our situation is different. We aren’t so much being ripped off by an oligarchy, a political elite, or by gangster politicans, that we see so often elsewhere around the world, as we are by engaging in a massive societal tug of war over taxation, borrowing and entitlements. We have come down to the haves fighting the have nots through the process of democracy. The political incentive is to pick the winner, and saddling up too long with bad economics is a losing horse.

Greg Webb August 6, 2011 at 12:35 pm

John, you said, “Perhaps your standards and expectations for the human race surpass my own.” But, you also said, “They will ultimately have the incentive to manage their monopoly with caution.” Can you not see your own contradiction?

You imply that you do not think that mere humans can manage their own affairs, but state that you think politicians will manage their monopoly on money with caution. The two simply do not go together.

Also, you never addressed the historical record that clearly reflects the continued failure of governments and central banks to “manage their monopoly with caution” To argue that politicians and central bankers will magically transform into better human beings in order to ‘manage their monopoly with caution’ is silly at best.

You also went off on a tangent about utopian societies and Dostoevsky’s “The Possessed.” I know a few others who do not want to stay close to the topic of the posts by Don or Russ, but you don’t want to be like that.

Chucklehead August 5, 2011 at 9:51 pm

I was expecting more a intellectual battle and was disappointed. My impression was it was more superficial and almost trite. I thought that the Papola-Roberts videos were more thorough and informative in a more succinct manner. It was also clear that the Papola-Roberts videos were the impetuous . I doubt when John was taking his buss rides, he could not imagine that listening to Econtalk would cause a BBC debate at the LSE to emerge .

Dan J August 5, 2011 at 10:22 pm

DOWNGRADED!!!!!! S&P downgrades US!!!

juan carlos vera August 6, 2011 at 9:11 am

I think it is right to degrade the creditworthiness of a government that has used easy money to rescue bankrupt companies (Bear Stearns, Fannie Mae, Freddie Mac, General Motors, and others) and create and fund unsustainable interventionist programs (Medicare, Medicaid, permanent wars, trade restrictions, and others). All this puts the U.S. government in a way of bankruptcy. The same thing is happening to European countries with welfare economics. Eventually the general collapse becomes inevitable. Now is the time of such great global Keynesian collapse. The inevitable is about to happen…

Methinks1776 August 6, 2011 at 4:34 pm

I’m going to have to get one of those “downgrade Obama” bumper stickers that came out minutes after the S&P announcement.

Do you really think this is a Keynesian collapse? I see it more as more of a socialist collapse – the natural result of “everyone trying to live at the expense of everyone else”.

Fortunately, because Europe is further down the road to collapse, I think the U.S. Treasurys will rally despite the downgrade. I say “fortunately” because we in America will have more time to adjust to the coming collapse. Inevitably, when everyone else is done exploding, it will be our turn. I have little faith that politicians feel any incentive to right this ship before it sinks.

tdp August 7, 2011 at 12:37 am

We won’t. We won’t cut spending, we’ll increase taxes, Obama will kick the can down the road on debt reform long enough to get elected and then the shit will really hit the fan. The Looney Left will trot out more ad hominem arguments and fallacies about the supposed rapacity of the rich and how free markets steal from the poor and concentrate all wealth in the hands of the privileged few and other such nonsense…they’ll actually be right on the last point, but the rapacious few will be politicians and their connected lobbyists and interest groups. Did I mention that in the midst of this hysterical moral masturbation and rhetorical shit-mist coming from the left and the politicians with thumbs jabbing their large intestines we will have economic stagnation, go bankrupt and become a third-rate power with no geopolitical clout. I’m moving to Estonia if shit really hits the fan…growth, prosperity, and respect for hard work and productive economic activity, and from a former Eastern Bloc Nation to boot!

Methinks1776 August 7, 2011 at 8:27 am

I think you have ten years. By “America” I meant “Americans”. And by “adjust” I meant move capital to another country, diversify into commodities like gold (held outside of the U.S.) and diamonds and into currencies like the Swiss Franc held at Swiss bank accounts (although, because of the Patriot Act, the Swiss won’t open an account for a U.S. citizen unless it’s at least a couple of million dollars). Oh, and don’t forget to get citizenship in another country. You will not be able to renounce your U.S. citizenship unless you have another one already. If you don’t renounce, the United States owns you. The aggression of the United States government against its own citizens is rising.

So, yes, I agree with you that we’re screwed.

juan carlos vera August 7, 2011 at 11:03 am

“…I see it more as more of a socialist collapse – the natural result of “everyone trying to live at the expense of everyone else…”
I agree with this…

“…because we in America will have more time to adjust to…”
I have my doubts…
Even if people make their adjustments to protect themselves from a possible collapse, this does not render it inevitable. The vehicle of that collapse is, in my opinion, the ongoing and uncontrolled government intervention in economic affairs, in general. But the cause of all evil comes from fiat money. This monopoly gives any government an enormous destructive power. With that money the government takes full power to interfere and contaminate the price system, ie the information system that people use to adjust and coordinate their complex economic decisions, including any adjustments they make to protect themselves from a crisis. The excessive additional government interventions introduce additional contamination into the price system and makes the adjustment process, what people do to protect themselves, it becomes catastrophic and damaging…

juan carlos vera August 6, 2011 at 5:25 am

Selgin: impeccable!!!…
“…After all, it isn’t just what workers would like to have in exchange for their paychecks that determines what they can have. On the contrary: what they can have depends crucially on what they themselves actually produce in exchange for the payments they receive…”

“…For Skidelsky’s argument–that workers will supply factories with orders for things no matter who pays them–illustrates in all its naked crudity the dangers of ignoring the “supply side” of economic activity. After all, it isn’t just what workers would like to have in exchange for their paychecks that determines what they can have. On the contrary: what they can have depends crucially on what they themselves actually produce in exchange for the payments they receive. An army of government workers employed digging and refilling ditches, for instance (and the sweeping nature of kidelsky’s assertion warrants the reductio) contributes absolutely nothing to ither its own or others’ ability to consume, let alone to the maintenance or
augmentation of the stock of productive capital…”

Lee Waaks August 6, 2011 at 6:16 pm

These quotes get at what Selgin termed the “rotten heart” of Keynesianism. No talk of aggregate demand failures can get around the fact that it matters what workers produce. Sure, Keynesians understand the basic concept of scarcity, i.e. guns versus butter, but you can’t butter your bread with guns. The school where a friend of mine teaches has a plaque that states it was built as a WPA project in 1934. No doubt it resulted in paychecks for the workers and a long-standing capital “investment” in education. But it seems likely that the funds could have been better spent elsewhere, meaning I’m not sure it’s what the consumers — some of whom were the very same workers who built it — wanted in the midst of a depression or even in the future had they been given a choice. The exchange value of the school might have been very low or worthless in these times.

juan carlos vera August 6, 2011 at 7:09 am

Congratulations, George Selgin, good job. but I want to leave here my humble opinion on this subject.
1-Keynesianism, I think, is already a closed problem. Just remember that, as reflected in the vision of Mr. Skidelsky, Keynes proposes that a big government must take, coercive and compulsively by tax, money from other people -that is: stolen money from other people- and use this money to distribute free lunch to their conies with whom they do juicy business. No constitution says that a government must be so big as it is and can do what it does, but they all are so big, and they all do atrocities. It’s not worth making any debate because there is nothing to debate. After all, what we now have is an inadequate political system -powered by Keynesianism- which has been forged from the postwar era. This system must die after traumatic and damaging crisis that put the world’s population to the brink of a huge catastrophe. It seems that only under these conditions, the society will learn about the dangerous consequences of this Keynesian political mistake.
2-The great challenge that we have now in the world is to educate future generations by teaching the Austrian view of the economy. The big battle will be fought, here, in the field of education. Young people should have the option to choose whether they want to learn sound’ economics or continue studying the Keynesian atrocities. We know very well that the present education systems, in most countries of the world, are designed to fill the student heads with Keynesian rubbish. The next task will be not easy…

Ken August 6, 2011 at 1:12 pm

The statement that if the government hadn’t intervened into the economy after the 1929 crash would have made things worse and would have lasted longer is utter rubbish. The 1930′s represented one of the most interventionist government’s in US history, yet as bad as October 1929 was, other crashes had occurred that were nearly as bad, yet recovery didn’t take two decades.

Regards,
Ken

Miles Stevenson August 6, 2011 at 5:35 pm

One thing that disappoints me about these debates is that they always tend to center around Keynsian theory: one side talks about why the theory is air-tight factual science, the other side talks about why it is a bankrupt, irrational series of fallacious assumptions that has been proven wrong by the real world. For once, I’d like to hear the Keynsian’s address Hayek’s theory of information and prices. Do they believe a central authority could possibly have good enough information to distribute resources better than the price system? If so, how? If not, why do they advocate a central authority distributing resources instead of the price system?

brotio August 7, 2011 at 1:11 am

*like*

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