Posts tagged Keynes
Liberty versus Stimulus
Tibor R. Machan
Despite all the bad blood and heated rhetoric–name calling, besmirching, hyperbole and other polemics–involved in our current political-economic controversies, there really is a substantive point of considerable difference at issue. Put bluntly, the Obama team is convinced that unless people get a push from the state, or some kind of prompters, they will not move; whereas many in the Tea Party and their allies believe that people will move on their own once they are free to do so.
Free market champions tend, in the main, to believe that what is needed for economic growth–including the ensuing surge in productivity, sales, investments and employment–is for the government to stop butting into people’s economic lives. Once that happens, the bulk of libertarians and free marketeers think, there will be plenty of action, generated by the people who will then be free to exercise their initiative. Freedom of enterprise is the main issue for these folks. They aren’t mean, they do not lack compassion, they just have greater confidence in human beings picking themselves up by their own bootstraps then in others beating them into action, stimulating them to move out, etc. As to those who need help, this too is best left to private initiative than to state action which is fraught with corruption.
In the most general way the Keynesians who are advising and cheering on President Obama consider this free enterprise doctrine primitive, something for which the philosophical and scientific basis has been thoroughly discredited. The grandfather of the American system, John Locke, often spoke as if people did have free will–basically they are all free and independent, he held. Similarly Adam Smith believed that a regime of liberty will unleash the kind of energy that gets people to seek to prosper–that is the gist of the invisible hand idea. Governments may need to help with keeping the peace since there will always be some miscreants who want to cheat their way to prosperity on the backs of their fellows but in the main those are exceptions, The bulk of the population in a society can get on with the job of earning a living, of creativity and productivity, without government meddling and prodding and waiving around all sorts of artificial inducements for people to get to work.
That has been, roughly, the outlook of modern free market political economists, although that’s not to say that all of its champions have been in full agreement about the basic ideas. Free will, for example, isn’t what all champions of economic and political liberty accept but even those who do not hold to the idea that there is some kind of inner drive–some call it self-interest, some the profit motive, some the instinct for survival–that will be unleashed in a free system.
In contrast, the sort of view of human nature found in Keynes and among his followers comes to the idea that to get moving from their natural and preferred state of rest, people have to be pushed or stimulated. Only if policies that exhibit these features are implemented will there be economic activity. (Even the free market champions embrace some of this when they claim, as a lot of them do, that what gets people to work is “demand.” The famous supply and demand idea suggests this, although there are free marketeers who are what used to be called supply-siders, which is to say that they believe the way the economy gets going is with people thinking up stuff to produce and taking it to market which will then generate purchases, etc. So the issue isn’t neatly describable.)
So, the crux of the debate is between those who expect economic growth to come from personal initiative that is usually thwarted by governments and those who believe some super agency needs to spur us all into action–via thousands of regulations and the planning of the economy in ways the state agents think important but the economic actors do not have in mind.
Thus the stimulus that Mr. Obama & Co. advocate comes with state generated public works that are supposed to beef up the infrastructure, create demand for what they think would be important to produce, etc. The free market people, in contrast, leave the economic growth to the multitude of interactions among free economic agents who aren’t told to do this or that, to build roads or bridges or paint or write or whatever (which is what planners usually count on for getting economic activity going). No, the free market champions leave it to the people and their creative and productive initiative to generate economic activity, with results that aren’t predictable and that cannot be planned out by politicians and bureaucrats.
So, the bottom line is that the big dispute is indeed a substantive one, between those who have confidence in freedom and those who trust manipulation–out right force or substantial nudging.
Public Works on Steroids
Tibor R. Machan
What the Obama administration and its cheerleaders call “the stimulus” is by all sensible accounts the macroeconomic version of steroids. And you can get quite addicted to these–just as some athletes can to their versions.
Now there are lots of things wrong with these artificial public works projects although sometimes they look benign enough. Many folks will not objects to having extra upgrades and improvements on their roads and highways. After all, nearly everything suffers from some measure of wear and tear. And who can tell without considerable expertise when it is time for justified improvements on the infrastructure. Usually such matters are decided upon by individuals in their particular lives–like when should their cars be washed, when should they get an oil change, when is it time to visit the dentist again. Or when is it time to get a complete medical check up! Or get one’s pants cleaned or shirts laundered. These are individual matters and highly contingent on personal and family factors, such as needs and budgets.
When it comes to roads and highways the local public work departments make these kinds of decisions based on the advice of the road engineers and on the budget bureaucrats. Some kind of rationale is arrived at, although with public works there is always the problem of some version of the tragedy of the commons. Too much attention to the parks may get in the way of enough attention to the recreation facilities or city pools. But when one adds the artificial stimuli provided by politics that’s guided by the fantasy of Keynesian economics–you know, the multiplier and such–no rationale is possible. It is nearly all guesswork. Unless one has roads with gaping pot holes that just cannot accommodate traffic anymore, the time to spend funds on upgrades and fixes turns out to be arbitrary. Kind of like how many steroids should a body builder use–it is an artificial aid and no one can tell just how much if any of it is the right amount.
In my region of the country, Orange County, California, ever since I moved here about 12 years ago there’s always been some road construction afoot. But not so much as to cause too many delays and detours. After years of experience with the local needs, those responsible manage to figure reasonably accurately just when the work is needed. But the stimulus funds arrived, which enabled the local authorities to spend on all kinds of projects whether any real need exists, it becomes a spectacle of arbitrary public works. Dozens of roads get shut down out of the blue. Thousands and more commuters need to stand and wait in long lines so the work can get done. Gasoline is wasted, not to mention people’s time–life, actually–and who knows what other unintended harmful consequences result.
Never even mind for now the fact that the stimulus consists of loot extorted from citizens who are imposed and encroached upon with all kinds of cost that no one can tell buys anything worthwhile. I am certainly unable to tell if that shovel-ready road job that is keeping me from getting to work on time is required or invented by Keynes-inspired magical economics. I cannot judge whether the gasoline used standing idly by at innumerable road blocs is being wasted or not. No one can, I bet. We are all simply informed to put up and shut up–these are, after all, public works and interference from ordinary citizens can land one in jail!
It is bad enough that people are so much at the mercy of the decisions that are made about public works and, more generally, public affairs and not unless they vote out the team is there a chance of changing the guard. But when the policy if injecting funny money into the system is carried out, nothing resembling a rational system can be expected.
I believe it was my very first scholarly paper in a philosophy journal, titled “Justice and the Welfare State,” that laid out the case showing that under the welfare state simple justice is impossible. Causes and results cannot be linked, responsibilities are vague and defuse.
The current policy with stimulus-driven public works is just another case in point.
Protesting Austerity Measures
Tibor R. Machan
Throughout Europe it is now routine–but it is not unfamiliar by now in the US either–for people to march and otherwise protest (sometimes with out and out reckless violence) austerity measures the government officials have decided to deploy so as to cope with the enormous debt they have amassed, mostly from committing to paying out huge entitlements that are not covered by funds either present or promised.
This is happening in Greece, Portugal, Spain, and other countries and only a few are somewhat prepared to handle them internally, without depending on getting funds from other countries. Of course, many in those other countries are themselves protesting these efforts to rectify profligacy by raiding the treasuries, with EU sanction, of the better managed ones. (Not that any of these welfare states have escaped completely their considerable financial malpractice!) But a substantial portion of the citizenry of Germany, for example, does not view this public wealth redistribution with enthusiasm. And while such welfare states as Germany may have numerous citizens who favor wealth redistribution within their societies, most stop at the border (which goes to show you what kind of “generosity” and “compassion” is involved in welfare statism).
The puzzle is that so many people seem to be aghast at the fact that when the politicians and bureaucrats, most often with substantial support from large segments of the citizenry, accumulate enormous debts, the country not only runs out of funds but looses its credit rating so that borrowing becomes more and more troublesome. Yes, and this is something the USA faces as do Greece, Portugal, Spain, etc.
But why are people protesting? Isn’t it a plain fact of public–not to mention private–finance that one cannot get blood out of a turnip? Aren’t people aware of all this form their own personal economic situations? When one maxes out one’s credit cards, is no longer able to refinance one’s home, and experiences all sorts of economic setbacks–caused, usually, by a smorgasbord of malpractice throughout the economy (which is nearly impossible to sort out so that it might be possible to tell the guilty from the innocent)–why is it that folks insist that somehow, anyhow, all this just get papered over or simply overlooked and that their hefty entitlements based on the fantasy of eternal welfare statism keep being undisturbed?
There can be numerous states of mind that may account for this. One of them is certainly the kind of political shenanigans perpetrated by the likes of those who insist that it is all the fault of the wealthy, who are soaking the treasury somehow–and if so, mostly with the complicity of the self-same politicians–and if only the rich could be soaked back, it would all get fixed. The idea that all this is a zero sum game–so that some are raking in huge gains at the expense of others and it would take but a bit of thorough investigation to sort it all out–is quite prominent in the minds of many, judging by the comments of prominent pundits and media figures on Op Ed pages and talk shows.
Yet there is also the plain delusion on the part of millions of people that one can indeed get blood out of a turnip, a delusion backed by some academic economists’ fancy idea that all it takes to remedy matters is to carry out some kind of magic–like deploying the famous Keynesian multiplier effect whereby the bureaucrats pump a bit of funny money into the economy via artificial money printing and public spending only to have it turn into massive wealth down the road (via the creation of employment based on such phony spending). Still, to make this credible one needs a large portion of the citizenry who all believe in magic to start with, that somehow debts can be wished away, not paid up, for example. That something can come from nothing (and idea that some philosophers actually propose)!
I am sure there are many other sources of the idea that when countries run out of funds, these can be made up by engaging in some imaginative accounting or something, so that there is no need for austerity, certainly for any austerity that will have an impact on the entitlements received by people to whom promises were made based on, well, sheer hope and wishful thinking.
So why aren’t politicians and bureaucrats–and their academic cheerleaders–coming out with some honest explanations, insisting that the citizenry face up to all this and stop throwing hysterical fits when finally the chicken come home to roost? Because most of these public servants are cowards and refuse to make any effort at genuine leadership, statesmanship. So much for their serving the public interest.
Kate Zernike’s Stupid Outrage
Tibor R. Machan
In a news report on October 2nd, 2010, titled “Movement of the Moment Looks to Long-Ago Texts,” New York Times reporter Kate Zernike tells us that books like Frederick Bastiat’s The Law, from 1850, and F. A Hayek’s The Road to Serfdom from 1944, are selling like hotcakes among Tea Party members. OMG! How awful. Next we will be told that some people are studying Socrates, Plato, Aristotle, Aquinas, Hobbes, Hume, Smith, Locke, Marx and other authors of “long-ago” texts in order to learn about political economy, ethics, social philosophy and such.
I suppose the hip thing to do would be to burn all these long-ago texts and focus only on the blogs, especially from the Left, in our efforts to gain an understanding of how the world works. Zernike writes as if most of our university curricula ought to be dismissed as useless, irrelevant, even destructive of human knowledge because, after all, in many courses one is advised to read other than the latest texts.
This is truly ignorant. Where does she think the Obamas and Krugmans and other champions of vast government powers gain their approach to political economy and public policy? How about Thomas Hobbes? Or Rousseau? Or Hegel or Marx or Keynes? All of these and their fellow statists produced works way back when.
It was in fact Keynes who made the observation that might have helped Ms. Zernike to get a grip on how ideas function in this world. As he wrote in 1936, “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” (The General Theory of Employment, Interest, and Money [Harcourt, Brace, 1936], p. 383.)
And it is, after all, Keynes’ views on the modern economy that’s pretty much guiding the thinking and policies of the Obama administration and the columns of Krugman (who makes no secret of this fact as he pushes for more and more government stimuli to solve our problems). Who thought up the idea of top down management of a country’s economy? It was the long ago champions of mercantilism whom Adam Smith criticized so severely for constantly meddling in the economy. And before that it was Thomas Hobbes who promoted absolute statism which clearly implied just the sort of policies that today’s Leftists favor and which pretty much guide their thinking today.
It is actually refreshing that Tea Party members are studying classic texts in the fields of economics and social philosophy to offset the mostly statist political education they have very likely received in their own contemporary education, an education surely biased in favor of government control of nearly everything in our lives given how that education itself is nearly uniformly government funded and administered. This certainly could use some balance from some of these long-ago thinkers the Tea Party is dipping into for some advice.
Instead of attempting to belittle Tea Party folks because they read some classic works critical of the huge scope of government–the Leviathan Hobbes was advocating –Zernike might have reported on some of the arguments they are absorbing from these thinkers and what replies might be offered them in defense of those other long-ago authors who loved government and are today influencing most politicians and bureaucrats with their statist teachings.
Tea Party folks may or may not be reading the best books to gain their grasp of the right way to approach today’s American political economy but for certain the task they face isn’t impeded at all by a bit of reading of the long-ago texts of their choice. Maybe when they end up on the Jaywalking segment of NBC-TV’s The Tonight Show with Mr. Leno, they will actually demonstrate a bit of education instead of the blatant ignorance that most of those being featured exhibit.
Tibor R. Machan
True, the idea came to me after having read many of Paul Krugman’s missives, both his columns in The New York Times and essays in such magazines as The New York Review of Books. In his often very polemical writings–for a Nobel Laureate he does seem to indulge in polemics more than do most other academics–he nearly always makes reference to market fundamentalism or market fundamentalists, alleging in the process that here in these United States free market capitalism is widely preferred among those thinking about economics and public policy. And that the free market is the status quot! It is all a crock but everyone has the right to speak his or her mind and that’s so even if one has but a small one.
In point of fact, in American there is probably much more a state fundamentalism afoot than any respect for the free market system. From labor to business, from farming to the sciences, from the arts to nearly every level of education professionals are always clamoring for the state, for government, to step in a fix and even run things. Yes, this is very true of business–major corporations are the country’s most eager welfare clients. Subsidies for this and that, protectionism here, price supports there; there simply is no end to how readily all these elements of our society rush to Congress or the President–or some political body at the local and state levels–so as to bring about health (or at least security) for their industry or firm.
Now, of course, this is just the nature of a mixed economy, which America is, as are all the Western developed countries. Except that no one ever makes the claim that Germany, France, Great Britain, or Australia is in the grip of market fundamentalism, which they are definitely not; but neither is the U. S. Yet the claim is made in many corners, including especially in the American academy. And the motivation for this transparent enough.
Although America’s economy is far from capitalist and American academics, even quite a few economists, are far from convinced that capitalism is a sound political economic system, the foes of capitalism are always worried that capitalism could break out all over in America, especially when the mixed economy has been the massive failure no one can reasonably deny. Under such circumstances foes of capitalism, people who love a controlled economy and would gladly do the controlling themselves, must find some way to make sure no one actually blames the mixed system for the failures, let alone those elements of the mixture that are anything but capitalist–e.g., the federal reserve system, the massive regulatory apparatus, the innumerable government officials charged to mange the economy (often actually called “czars”!). So why not do the old fashioned thing and mount a defense of statism by leading an attack on capitalism, the only innocent party to the fiasco.
These folks, let’s be clear about it, are state fundamentalists. They love government being in charge of the economy, and they are clearly hoping for a hand in this assignment. The more control the government has over the system, the more their Keynesian plans can be put into effect. As Keynes himself made clear, under a system of central planning, Keynesian measure are easy to implement: “[T]he theory of aggregated production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state [einestotalen Staates] than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire.” So why not nudge American toward totalitarianism and then implement the policies recommended by such Keynesians as Professor Krugman? Seems like it is reasonable to assume that this is a game plan of the state fundamentalists.
Bottom line: No market fundamentalism anywhere in sight here but plenty of state fundamentalism is in evidence. And unless the state fundamentalists’ fraudulent attacks on free market capitalism are promptly refuted, they may indeed pull off their scam and use the current problems which are the result of the mixed economy to advance their radical statist objectives. (BTW, Keynes himself was not a committed statist–he promoted statist measures only for the short run, unlike many of his epigone.)