Walter and Bill on Keynesianism

I love Walter Block and Bill Bennett.  In their paper, “Involuntary Unemployment” (Dialogue, Vol. 1, 2008, pp. 10-22), they write on the persistence of Keynesian theory despite its failures to explain real-world economic phenomenon:

Keynesianism has played a virulent role in the economics profession. Its central idea, that there could be an underemployment equilibrium, is a hard one, evidently, to jettison. Like a vampire, intellectually shooting this economic philosophy is not good enough: one must employ garlic, or a silver bullet, or some such, lest it arise from its “killing,” ghoul-like. Keynes (1936) has been “killed” over and over; yet it marches on, oblivious to its own death.

To wit, one would have thought that Keynesianism would have been stopped dead in its tracks by the phenomenon of stagflation. For, the Keynesian remedy for inflation was to reduce aggregate demand; for deflation, or depression, to increase. What, then, when not one but both of these phenomena present themselves at the same time? Any economic philosophy with but a modicum of respect would have vanished into the woodwork in the face of so obvious a rejection of its basic tenets. But not, of course, Keynesianism, which has a life of its own despite being blatantly contradicted by real world experience.

This refusal to contemplate an equilibrium situation at other than full employment stems from this “dead from the neck up, but not below,” phenomenon.

In a footnote, they add:  ”The authors of the present article are located in New Orleans, the vampire capital of the universe. We brook no disagreement with our claims in this regard. Although we usually eschew argument from authority, in this one case we stand ready to employ it.”

Read the full paper here.

No doubt building on the Keynesianism-as-vampire analogy, The Onion last year offered this spoof of a Paul Krugman column that captures the essence of the Block-Barnett argument.  What was (sadly) not a spoof was Guenter Reimann’s 1939 description of the German economy in his book The Vampire Economy, which readers of this blog know Keynes lauded in his introduction to the German-language edition of the General Theory.  In it, Reimann explained how the National Socialists manipulated German economic activity through its regulatory and tax regimes, inflation and its resulting price controls, and violations of property rights.  The Mises Institute offers a zero-price PDF download of Guenter’s remarkable book, as well as the ability to purchase a hard copy, here.

Comments

  1. (1) The appeal of Keynesianism to policy-makers is that doubling-down on vote-buying, on bread-and-circus, is the solution to the problems originally caused by vote-buying and bread-and-circus. Keynes always told them what they wanted to hear, and that is why policymakers dropped Keynes only for three years, from 1979-1982.

    (2) The vote-buying has grown to the point that at this point, enough people don’t care whether we’re right – it’s THEIR public sector job, or public works union contractor job, or their husband’s, or their uncle’s, that will be lost, so screw everyone else.

    (3) Macroeconomics is not part of the basic curriculum in the US, and most people and even firms live and think day-to-day. Bastiat wrote of “what is seen and what is unseen.” He referred to the “unseen” as the “unseen” for a reason. If you take 40 cents from each of 100,000 people and create a new government bureaucrat job, you have bought a Democrat vote with that job, unless it is in the Pentagon, in which case you have bought a new Republican vote. The government can claim to have “created” that job. You cannot trace the lost private sector job back to any particular confiscation of 4 cents. Even though you know that the $40,000 that can no longer be spent or invested did have that effect, the person who loses his job cannot trace that one lost job to any particular confiscation, and it is easier to blame the evil manager.

    (4) Similarly, people are easily fooled. If the proposals to raise minimum wage from $7.50 to $12 or $15 / hour in NYC were passed, it would not give people making $7.50 a raise. Many people are simply dumb as a post and don’t understand this – including, unfortunately, the people making $7.50, who will end up on a social program, dependent upon one party’s taxpayer-funded largesse for their next meal (one guess as to how they will from that point on predictably vote – and yes, I believe that that is deliberate). These are people, remember, who cannot answer the “are you human” question – they don’t know from macro! What will happen is obvious to most economists – - if you have to pay $12, you’ll buy $12 worth of labor. You’ll hire the people who work at Starbucks for $12/hour and have fewer of them, and have the multitask as they do at Starbucks. The $7.50/hour worker who presently EITHER makes the Big Macs OR makes the fries will not be formally, abruptly, laid off – she is part time. She will have her hours cut from 20 to 6, with the 6 being the 3AM to 9AM shift, until she quits. And she will be replaced by a more qualified worker. The net effect on total employment will be small, but it will not be the same employees, thus it won’t be the case that anyone got a raise, and it will be the case that those whom the policy was supposedly designed to help are made worse off – - but this will not show up as a material change in aggregate figures, which are what will be quoted. Meanwhile the media will protray the people who made this happen as the ones sympathetic to the plight of the poor!!!

    (5) We can repeat “the private economy is not a zero sum game” all we want, and that is correct, but people are naturally envious. You can conclude your paper ripping Sawhill and Krugman apart re: the Gini coefficient ten times from Sunday with the bit about would you be better off if (a) you got a $20K raise and your already-rich neighbor won the lottery or (b) you got a $1K raise and your already-rich neighbor’s bonus was cut in half, and everyone would answer (a) even though that would mean their “share of the building’s income fell,” and those ARE the choices between the US from 1980-2000 and the US from 1950-1970, and those ARE the choices between the US and Scandinavia, but people still resent the rich neighbor, they still hate her for what she has, and somehow, whether or not they understand that pulling her back down helps nobody, and that other countries pulling their rich down rather than lifting anyone up is the ONLY reason their RELATIVE “income mobility” stats are “better,” they will still support sticking it to them, for its own sake. Envy is a strongly-felt emotion.

  2. [...] No doubt building on the Keynesianism-as-vampire analogy, The Onion last year offered this spoof of a Paul Krugman column that captures the essence of the Block-Barnett argument. What was (sadly) not a spoof was Guenter Reimann’s 1939 description of the German economy in his book The Vampire Economy, which readers of this blog knowKeynes lauded in the German-language edition of his General Theory.  [...]

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