George Selgin sends me by e-mail the following:
From the Preface to Voltaire’s On the Lisbon Earthquake : “’All is well, the heirs of the dead will increase their fortunes, masons will make money rebuilding the buildings, beasts feed off the bodies buried in the debris: this is the necessary effect of the necessary causes; your particular misfortune is nothing, you will contribute to the general welfare’: such talk would have been as cruel as the earthquake was dreadful.”
Voltaire here ‘got it.’ People’s natural Keynesian bias toward worrying about demand isn’t new, and, alas, it isn’t going away. That’s one reason it’s such a shame that Keynesianism elevates that bias into a seemingly respectable economic theory.
The kernel of truth in Keynesianism – that people, in seeking to increase their cash balances, can cause overall economic activity to fall below the level necessary to supply people with what they all would demand if nominal prices were sufficiently flexible – is bloated into the go-to ‘explanation’ for all real and perceived macroeconomic ills.
Keynesianism strikes me in much the same way that modern neocon thinking strikes me: conveniently simplistic for people who feel that decisive government intervention is required.
In the case of the neocons, they perceive a genuine problem – a foreign country ruled by a dictator of the sort that we Americans wouldn’t tolerate. The neocons ignore the incredibly complex array of social institutions and cultural mores that allow, perhaps even encourage, the likes of a Qaddaffi or a Hussein to gain and remain in power. That is, the all-important ‘micro’ issues are ignored, enabling the neocons to conclude that if the good guys take out the bad guys, nations once suffering the inexplicable misfortune of being ruled by bad guys will surely turn to their own internal good guys as their leaders. What stands between the people of such tyrannized nations and civil society is simply the bad guys and their henchmen. (Why bother looking more deeply than the brilliantly obvious fact that bad guys are in charge? Can’t you see that that’s the problem??) And those who warn against U.S. military intervention to rid unfortunate nations of their bad guys are blind dreamers; people out of touch with reality. “What do you propose we do?” ask the neocons contemptuously. “Nothing? Ha!”
Similarly with Keynesianism. Keynesians perceive a genuine problem – unemployment. Unemployment is obviously caused by inadequate demand by employers for workers. This inadequate demand for workers, in turn, seems so obviously to be caused by inadequate demand for the goods and services that these employers produce. (Gosh, even fifteen-year-olds can see this fact!) All that stands between workers and full-employment is inadequate aggregate demand. (Why bother looking more deeply than the fact that employers are demanding too few workers and that, if demand for employers’ outputs were higher, employers’ demand for workers will be higher. Can’t you see that that’s the problem??) So the solution is simple: remove the inadequate demand. Government spending is an oh-so-obvious means of increasing aggregate demand. Increase “G.”
No need, really, to worry about any ‘microeconomic’ issues that might be in play. In a developed economy, those microeconomic issues can be safely assumed to be pretty much alright, or at least to be issues that will aright themselves if only the big bad guy – inadequate aggregate demand – is slain. And anyone who objects to such an obvious course of corrective action is some sort of ideologue or stupid person, too dense to see the obvious. “What do you propose we do?” ask the Keynesians contemptuously. “Nothing? Ha!”
(Of course, one difference between these two situations is that microeconomic mal-adjustments in market economies are far more likely to aright themselves, if left alone, than are the cultural issues give rise to tyrannies.)