More Musings on Keynes-as-Conservative, &
2022-10-14 Fr
FIRST: More Musings on Keynes-as-Conservative:
When one reads John Maynard Keynes with some attention to context and even a moderately open mind—say, the General Theory chapter 24 <https://www.marxists.org/reference/subject/economics/keynes/general-theory/ch24.htm>—and you see a very smart upper-class twit who believes, largely accurately, that he can save the market capitalist order from itself with very minor interventions, with only a small dose of light handed central planning. He sees two major flaws in how the system works:
“its failure to provide for full employment…”
“its arbitrary and inequitable distribution of wealth and incomes…”
Both can be cured if the government will stabilize aggregate demand at the appropriate relative level by:
exercis[ing] a guiding influence on the propensity to consume partly through its scheme of taxation, partly by fixing the rate of interest, and partly, perhaps, in other ways…. It seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself…. I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment; though this need not exclude all manner of compromises and of devices by which public authority will co-operate with private initiative…
Given this, there is then:
no obvious case… for… State Socialism…. Determin[ing] the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them… accomplishe[s] all that is necessary…
Moreover, solving the problem of full employment also solves the problem of income distribution. Full-employment demand-management policy will be a low interest-rate policy, hence it achieves:
the euthanasia of the rentier… of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital [to earn] interest… [which] rewards no genuine sacrifice…
And as Keynes sums up:
If our central controls succeed in establishing an aggregate volume of output corresponding to full employment as nearly as is practicable, the classical theory comes into its own…. The result… is not to dispose of the ‘Manchester System’, but to indicate… [what] environment… the free play of economic forces requires…. Then the traditional advantages of individualism will still hold good. Let us stop for a moment to remind ourselves what these advantages are. They are partly advantages of efficiency—the advantages of decentralisation and of the play of self-interest.… Above all, individualism, if it can be purged of its defects and its abuses, is the best safeguard of personal liberty in the sense that, compared with any other system, it greatly widens the field for the exercise of personal choice. It is also the best safeguard of the variety of life, which emerges precisely from this extended field of personal choice, and the loss of which is the greatest of all the losses of the homogeneous or totalitarian state. For this variety preserves the traditions which embody the most secure and successful choices of former generations; it colours the present with the diversification of its fancy; and, being the handmaid of experiment as well as of tradition and of fancy, it is the most powerful instrument to better the future…
Even moderately insightful conservatives recognized that there was a good chance that Keynes was right. Milton Friedman, for example, it was really a Keynesian wolf in classical-libertarian sheep's clothing. He defined a "neutral" monetary policy to be "whatever monetary policy produced an interest rate path consistent with stable, full employment". He hoped that a stable nominal, monetary growth rate for some proper monetary aggregate would do this. But for Friedman, the way you knew that monetary policy had been too tight or too loose. Did not depend on whether some quantitative monetary aggregate under shot or overshot the constant growth path. It, rather, depending on whether there was depression or inflation.
Milton Friedman's monetary framework consisted therefore of a portfolio of two highly leveraged dynamic bets: (1) that he could sell light-handed Keynesian-type central planning to his ideological allies by pretending that it was actually a “neutral” laissez-faire monetary policy, something like the courts rather than an “interference” with the market; and (2) that contary to Keynes’s guess, “the influence of banking policy on the rate of interest will be sufficient by itself” so “no somewhat comprehensive socialisation of investment” would be required. In the long-run, both of those dynamic bets went spectaculary bankrupt. Hence, while in the long-run Keynes and his ideas are not intellectually dead, Milton Friedman and his ideas are.
There was one perhaps-insightful conservative critique of Keynesian ideas. It was Jacob Viner’s: that there was no possibility of stabilizing aggregate demand at a full-employment, non-inflationary level for long—that “Keynesianism” could work only as long as in the “constant race between the printing press and the business agents of the trade unions… the printing press could maintain a constant lead…” Businesses, Viner thought, needed either to be flooded with cash or to expect wages to be curbed if they were to invest; the first was inflation, the second required the threat of periodic mass unemployment, and so Keynes’s system could not be stable and successful.
The jury is, I think, still out on Viner.
Other than Friedman and his colleagues—who knew very well what they were doing in dressing their Keynesian wolfish selves in libertarian sheep’s clothing—and Viner, however, the reaction of conservatives to Keynes was never one of debate, acceptance, and approval for his offering them a potential way forward. It was, rather, unhinged rage.
Why was that?
Must-Reads: Reviews and Such of Slouching:
The past 24-hours’ worth of reactions to my Slouching Towards Utopia <bit.ly/3pP3Krk>. Three different very good and very thoughtful and very critical reviews:
Scott Sumner: Brad DeLong's 20th century: ‘I am a slow reader and I was dead tired on the final leg of the trip. Yet I somehow managed to finish the entire 540-page book just as I landed in Orange County, which wouldn’t have been possible if DeLong hadn’t written an unusually absorbing account of this period. Everyone else seemed to be watching inflight movies…. DeLong’s real interest is in the way that ideology helped to shape the events of the past 150 years. I’ll focus on areas where I disagree with DeLong, but I agree with most of his analysis. Don’t let my quibbles dissuade you from reading this engrossing narrative…
Dietz Vollrath: Review of DeLong's "Slouching Towards Utopia”: ‘It is a necessary book to read if you are at all interested in the subject of economic growth. It is informative and thought-provoking. If you are one of those 50% who have not read it, go do so now…. I’m… interested in is that very relevant and ultimately very necessary change in how population growth responded to living standards that occurred around the same time. What happened around 1870 was not just that productivity growth was able to outpace population growth, but that population growth started to fall in response to increase in productivity. This was a fundamental flip in the typical Malthusian relationship…
Patrick Luciani: Is the age of prosperity over?: ‘Professor DeLong is a polymath who knows much about economics, history, and philosophy, and here his talents are on full display. But talent often comes with a healthy ego…. It’s a fantastic read, if not a bit weird in places with an unapologetic leftist bias. (No surprise here, given that DeLong was inspired by socialist historian Eric Hobsbawm’s classic book on the twentieth century entitled The Age of Extremes, which goes from 1914 to the fall of the Soviet Union in 1991.) In no other book on economic history would you find the poetry of Rudyard Kipling or the colourful career of Herbert Hoover, a description of the neurosis of Nikola Tesla or witty allusions to Greek mythology. And here’s the best part: you don’t have to be an economist or historian to enjoy this book or reach for the smelling salts to revive you from boredom...
Other Things That Went Whizzing by…
Very Briefly Noted:
Branko Milanovic: Is liberal democracy part of human development?: ‘Leandro Prados de la Escosura… Human Development and the Path to Freedom: 1870 to the Present… here and an article on the same topic is here…
John Authers: The UK's Crisis Is Threatening the Global Inflation Fight: ‘Financial woes are reverberating far beyond the country’s borders. Now, the turmoil may change how central banks around the world choose to deal with inflation…
Rana Mitter: Where Is Xi’s China Heading?: ‘China’s premier…. If it is Wang Yang, who successfully led Guangdong and Chongqing, two of the country’s most economically dynamic areas, that choice might indicate a turn toward giving the market more leeway…. Kerry Brown… Xi: A Study in Power…. Another valuable new book is Xi Jinping: The Most Powerful Man in the World, by German journalists Stefan Aust and Adrian Geige…
Noah Smith: Book Review: "Freedom's Forge”: ‘A successful sequel to Freedom’s Forge will have to include less offshoring of supply chains to China, but more supply chains between U.S. allies. Rhetorically and conceptually, that could be a tough needle to thread. At the same time, the U.S. is just now beginning to emerge from its Second Gilded Age…. We sure could use a few people like Bill Knudsen right now…
Wikipedia: Monarch butterfly migration…
Michael Tomasky: The GOP’s Cult of Election Deniers Is a Growing Threat to the Nation…
Hamish McKenzie: Please stop calling it the ‘newsletter economy’: ‘Or the creator economy, for that matter…
Jamie Dupree: October Surprise: Jan. 6 panel subpoenas Trump…
Claire Potter: The Moment the Republican Party Lost Control…
¶s:
Alan Crawford: ‘Sweeping new US restrictions were announced last Friday on sales of semiconductors and chipmaking equipment to China. The consequent market meltdown is tantamount to the fact they add up to the most drastic round of technology curbs on Beijing to date…. Chip stocks erased more than $240 billion in global market value at one point this week. Stocks later recovered, but the rout left a dawning realization that US policy on China has hardened...
Paul Campos: The Institutionalist: ‘Frank Foer thinks Merrick Garland is going to indict Donald Trump…. “I called Garland an ‘institutionalist’…. I was surprised he would resist the term. I think he wanted me to understand that he is alive to the perils facing democracy…. Radicalizing Merrick Garland would be impossible. But it was an evolution. His faith in institutions had begun to wobble.’… Foer argues that the last two years have changed Garland, and that in the end he will reach the conclusion that attempting to enforce the law is a more compelling consideration than galaxy-brained calculations about the ultimate political consequences of doing so. I hope he’s right…
I will be curious how you would respond to Scott Sumner. For me, thinking about the question of, "can you provide examples of large-scale failures of libertarian ideology" after having just finished _Slouching_ I answer that differently than I would have.
1) While libertarian ideology is, ostensibly, anti-fascist, the book would prompt the question, "does libertarianism actually provide a defense against fascism or does that defense collapse against the force of people saying (a la Polanyi) that they want the state to recognize them as more than just participants in the market."
2) If you believe that the 20th C was more good than terrible, you need to consider that the good parts of the century required government to play its role properly (not just to get out of the way). For example, the project of coordinating the activity of 8bn people requires more than just a market, it requires international regulator regimes. I remember a conversation with a political scientist who said that part of what drives both extra-national bodies (like the EU), and the push towards national (rather than federal) politics in the US is that business benefits from having regulatory questions that can be answered at a broad level, rather than in a patchwork.
It's hard to imagine a government that contributed to regulatory regimes internationally while being libertarian at home (or, to turn that around, one failure of libertarianism would be to not attempt to improve the functioning of international bodies).
Somewhat related, I would read the history of WWI in _Slouching_ as an example of the failure of states with a weak sense of the role of government, but I'd have to think hard about how to defend that.
3) Before reading _Slouching_ my top-of-the-head answer to the problems of libertarian governance would be examples of the tragedy of the commons -- Global Warming; Acid Rain, overfishing, loss of biodiversity, etc . . .
Those don't appear to have caused mass death in the long 20th Century, but that's in significant part because we did not address them in a libertarian way.
Sumner’s take was odd in reading you as equating Libertarianism as an ideology similar to Fascism and Communism. Not even homoiousion. Could he be thinking that you are equating dogs breakfast “neoliberalism” with Libertinism?
I heard a statement of the Vollrath point n your presentation last night with Matt. I don’t know if it so clearly stated in the text.
Luciani: “unapologetic leftist bias. :) That what you get for using inflammatory language like "patriarchy."