Wednesday, February 16, 2011

The New Statism

Jeffrey Tucker on the economics of Keynes. To quote:
Keynes is like Marx in that he has been refuted again and again, and every generation of thinkers declares the body of ideas dead from the neck up. It was this way with Marx in the 1890s, when German thinkers were already dismissing his ideas as defunct. But it was all premature. So with Keynes: Economists in the late 1930s wrote him off, and again in the 1940s. By the late 1950s, economists were already apologizing in advance for refuting him yet again. And yet here we are, 75 years after the General Theory appeared, and Keynes is still the man.

It's about time that someone with a voice in the Catholic world actually spoke about Keynesian theory, for this is indeed the source for just about every crazy scheme of governments to wreck the functioning of markets throughout the world. The naming of Keynesianism here falls in a great tradition, too. Popes from Leo XIII to Benedict XVI have condemned Marxism time and again, but it is not Marx who is the muse behind the current fiasco among developed economies on both sides of the Atlantic.

Keynes was neither Marxist nor socialist but rather a pragmatist who had an upside-down way of viewing the functioning of markets. He saw all problems of recession as reducing to a single problem: Resources were still instead of active. This was true for labor, capital, and even money, which is why he was so intent on schemes that get people off their feet and work, get consumers spending instead of saving, and get factories coughing up products rather than waiting it out.

W. H. Hutt had it right in 1939 with his book called The Theory of Idle Resources. He argued that there are rational reasons for consumers to save and not spend, rational reasons for factories to pull back rather than squander their resources, and even rational reasons for people to hold high cash balances. Even unemployment masked an underlying rationality: Businesses might not be hiring at present wage rates, and workers are either not inclined or not permitted to lower the asking price for their labor.

Keynes would have none of it. He wanted action, busyness, production, labor, spending -- these were the key. If the public wouldn't do it, his prescription for prosperity involved a vast increase in government control over economic life using fiscal and monetary planning to "stimulate demand" and discourage saving, while believing that prosperity could be generated out of a printing press if necessary. In other words, Keynes wanted a vast coercive apparatus to goad markets into doing what he believed they should be doing, and never mind the cost.

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