The price of ignorance

The History of Economic Thought is far and away the most interesting part of economics. Unlike the history of other disciplines, the history of chemistry for example, it can only be studied by someone with an economics background, but is also a very good medium through which to learn economics itself. And with modern economics courses drenched in junk science, HET is perhaps the only way to learn about how an economy works. A couple of days ago, the moderator at the Societies for the History of Economics online discussion forum (the SHOE list) put up a brief note:

Here is a second review of Zachary Carter’s The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes, in The New York Times from Jennifer Szalai [the first one was from the WSJ]. This reviewer says it is “outstanding” and “brilliantly incisive.”

Which led me to this reply:

I am grateful again to the moderator for putting up another review of The Price of Peace, subtitled, “Money, Democracy and the Life of John Maynard Keynes. The review was from The New York Times. Its title, “John Maynard Keynes Died in 1946. An Outstanding New Biography Shows Him Relevant Still”. More of the usual mythology.

“The General Theory” aside, the rough outline of the Keynes story is that nobody with any power listened to his visionary proposals before the crisis of the Depression hit; after that, almost everyone did. Keynes’s ideas were radical, Carter writes, but he was staunchly anti-revolutionary: Having been traumatized by World War I, Keynes was at pains to persuade some of his Marxist students at Cambridge that a more just and equitable society didn’t have to come at the point of a gun. An activist government and deficit spending could alleviate suffering and spur growth, he reasoned, and the world eventually obliged. As much as Franklin Roosevelt didn’t like running a deficit, his New Deal offered one version of how Keynesianism worked; World War II offered another.

Of course, Harry Truman offered a third version on how things should be done. At the end of World War II, Truman immediately “sacked” all of the millions who had been in the armed forces while virtually the entire armaments industry was closing, thus creating perhaps the largest potential increase in mass unemployment in history. At the same time, and immediately the war was over, Truman balanced the budget, eliminating the largest deficit as a proportion of GDP in American history. And the result, as we all know, was the largest and most sustained period of growth in history with full employment continuing almost year after year through until the 1970s.

I might contrast The Price of Peace and its review with this: The Politics of Fear, whose sub-title is, “For economist Robert Higgs, Covid-19 is just the latest emergency justifying expanded government power”. Lots there to ponder, but will merely quote this:

“I foresee the worst depression since the Great Depression right around the corner. That alone would be enough to bring forth a host of bad government policies with long-lasting consequences. Many such policies have already been adopted. But much more awaits us along these lines.”

There have been so many breakages in the way our economies knit together in the past few months there is nothing that might not yet happen, and there is no telling how bad it might get. We are so far beyond anything that Keynes ever wrote about or dealt with that calling up his name is more than just a total irrelevance, it is an astonishing distraction. Yet the reviewer writes, in her very first paragraph, that this new biography of Keynes “offers a resonant guide to our current moment, even if he finished writing it in the time before Covid-19”.

Does it no longer occur to most economists to leave things to the market to sort themselves out? With Keynesian economics we are not only fighting the last war, we are fighting a war that had ceased in 1933 when the Great Depression ended (everywhere, it might be noted but in FDR’s USA), using classical economic theory to bring the Depression to an end. How inappropriate would Keynesian theory be in trying to deal with problems associated with our present government-engineered downturn that cannot in any sense be attributed to a deficiency of aggregate demand and an excess of saving.

The moderator has now added this:

To avoid any potential confusion, I just want to say that I posted these two reviews to point out that this bio of Keynes is getting a great deal of mainstream attention. It’s nice to see the history of economic thought in the WSJ and NYT. I have not read it and I do not have an opinion on it.

I thank Steve for his view and if any of our many other SHOE experts on Keynes has a reaction to the book, I hope they will share it with us.

There are 1200 who link into the SHOE list. Will let you know if anyone does.

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9 Responses to The price of ignorance

  1. Bad Samaritan

    The market is always best. However, since the average Joe has no idea that the term “the market also refers to him and his Mrs and all his mates, then the failure of “the market” to get this across is a major issue as well, is it not?

    The real problem now is that what used to be seen as essentially normal people, ensconced as political leaders: maybe slightly inept and keystone-coppish; maybe self-serving in some regards but still normal people in other respects…..are seen to be authoritarian thugs who will steal everything from you in an instant. In Victoria they are even showing us that they work for the CCP: famed slaughterers of broad daylight.

    This latest disgraceful home imprisonments without trial demonstrates that when the order is given to run the vehicles over dissenters, Aussie cops, will do it.

    Anyhow….does anyone have the stats for how well the populations did overall under Adolf and Benito, Hugo and Fidel, so’s we can get a feel for how it might go under Dan, ScoMo and Co?

  2. Mark M

    How Fast The World Ends

    New unemployment numbers are out today.
    After reading them, I told my wife, “If a soothsayer had shown up on New Year’s Eve and said that by summer, 40 million people would be unemployed in this country, we would have thought he was crazy.”

    A global economic crash like 2008, sure, that we could understand — but even then, the job losses weren’t this bad, and they happened over 18 monhts.

    This thing, though? Forty million made jobless in 10 weeks?

    Seriously, if someone had told you that this was going to happen, and you believed them, what kind of plausible scenario would you have come up with to explain this catastrophe?

    I don’t know if most of us could have done it.

    An aside: it’s a tale that has been told many times: how World War I destroyed European civilization, and ushered in modernity in full force.

    via instapundit

  3. nfw

    From “…the moderator at the Societies for the History of Economics online discussion forum (the SHOE list)…” “…that this bio of Keynes is getting a great deal of mainstream attention.” and then “There are 1200 who link into the SHOE list. ”

    1200 hey? Talk about mainstream.

  4. Megan

    The SHOE list is a self selected group of 1200 with a special interest in the HET. Mainstream in this context means outside their group.

    I know English comprehension can be tricky but if you work hard at it, one day you might actually understand the meaning of words in sentences.

  5. Spurgeon Monkfish III

    An activist government and deficit spending could alleviate suffering and spur growth

    Except when it doesn’t, which would be every time such idiocy has been foisted on an unwitting populace.

  6. Sinclair Davidson

    I’m surprised there is a market for yet another Keynes biography.

  7. Bad Samaritan

    What about discussing QE meeting MMT (a branch of Keynesianism) in Australia’s response to this latest manufactured crisis?

    The Commonwealth issues bonds which are then bought by the RBA with fresh money (physical and electronic) to give the Govt cover for their deficit spending. The deal is that sometime in the future the RBA will forgive the Commonwealth it’s debt. this MMT avoids tax increases and foreign-currency-denominated borrowings, and can go on forever, so long as this fresh-money demand does not overwhelm goods and services being supplied.

    This only superficially resembles horror-story money-printing in places like Weimar Germany, Zimbabwe, Yugoslavia, Turkey etc, as those places lacked supply or else were heavily indebted in foreign currencies (or both). ScoMo and Josh and that dope at the RBA (Phil something) like it, so why not all thinking Cats too?

    BTW: Originally the RBA was playing sleight-of-hand with this by first letting the commercial banks buy the bonds, before taking them off their hands. Is this still the accounting MO being used?

  8. John A

    Maybe not directly on-topic but maybe not as far-fetched as one might think:

    A couple of days ago, the moderator at the Societies for the History of Economics online discussion forum (the SHOE list) put up a brief note

    Does SHOE ever ponder the “Shoe Event Horizon” as expounded in “Hitchhiker’s Guide to the Galaxy”?

  9. The modern interpretation of Keynes does him a great disservice. During my Economics training at University almost a half century back (yes, I am an economist by training) in a more conservative time: my instructors took great pains to assure we knew ALL of what Keynes said, including his admonition that deficit spending could only work for 2 or 3 years before inflation would set in (so never use it more than a couple of years) AND that a surplus must be run in good times to pay off the deficit.

    He knew quite well how much it would fail if used more than sparingly or if deficits were carried for many years. IIRC, he even coined the phrase “Liquidity Trap” to describe the failure mode when even zero interest rates would fail to stimulate (see the European Central Bank today…)

    It is the creation of those since Keynes who claim to be “Keynesians”, but ignore his admonitions, that are the real evil.

    I know it is impossible to retrieve the name of Keynes from the pejorative use now, but I do hope some folks will remember that he knew, and it was others who pushed for what he warned not to do.

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