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Keynesian Prejudices

Here’s a letter to the Wall Street Journal:

I greatly enjoyed Steve Moore’s conversation with James Freeman on Keynesian economics (“Why Americans Hate Economics,” August 19).

If economists of a ‘classical’ bent too-seldom acknowledge the petite kernel of truth in Keynesianism (namely, that “aggregate demand” can be inadequate), it’s because giving credence to that kernel stokes two dangerous embers that readily ignite into a conflagration of calamitous policies.

The first is politicians’ burning desire to spend money borrowed from future generations – a desire whose existence has nothing to do with Keynesianism but is fueled by the intellectual cover conveniently supplied by that theory.

The second is the propensity of many people to heedlessly draw inferences about the economy as a whole from their individual experiences.  Such heedlessness often yields inferences that are invalid.

It’s true that Jones suffers if demand for his services falls, and that his suffering ceases when demand for his services is restored.  From this correct observation, however, Jones mistakenly concludes that every economy-wide downturn is the result of deficient aggregate demand – and, hence, that recessions are easily ended if only government would spend more money to increase aggregate demand.  Such a simplistic, pedestrian focus on demand diverts attention away from the many complex structural problems – the “microeconomic problems” – that in reality always are the ultimate causes of sustained economic downturns, and about which Keynesianism says next to nothing.

Donald J. Boudreaux

Still among the finest essays on this matter is Hayek’s 1974 Nobel lecture, “The Pretence of Knowledge.”  And EconLog‘s Arnold Kling, with his focus on “patterns of sustainable specialization and trade,” is also worthwhile to check out.