We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Another great line from Mr Woods

“The Japanese government did absolutely everything the Austrian theory suggests it should not do in order to fight recession. It engaged in every single activity that Keynesians like Paul Krugman recommended. As a result, its slump went on for a decade and a half. Keynesians continue to recommend these very policies for the United States, as if the debacle in Japan never occurred. In late 2008 financial newspapers in the US actually began to speak of a revival of Keynesian thinking (claiming, absurdly enough, that the present crisis gave the ideas of Keynes, one of the twentieth century’s collection of inexplicably respected crackpots, a new lease of life) again with no mention of Japan.”

Thomas Woods, Meltdown, A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse. Page 84.

This book is full of great passages like this. I have already quoted a nice line from Mr Woods mocking the contention that the enormous expansion of government spending in WW2 helped “solve” the Great Depression. Incredibly, there were people who actually defended this absurd idea on our comment boards. It never fails to amaze me that people overlook a basic fact of economic life: we work to produce stuff that people want to consume. The kind of state domination of a country during war, with its rationing, government direction of labour, and of course, mass conscription, hardly sounds like the sort of policy that anyone interested in increased prosperity should favour.

There is one point where I disagree with Mr Woods. He says the veneration of Keynes is inexplicable. It is in fact pretty easy to understand: he had a sort of superficial plausibility, and of course his ideas were meat and drink to politicians looking for intellectual cover to expand their powers. Even so, I do kind of wonder if Keynes would be embarrassed by some of the people who claim his name as justification for their views.

13 comments to Another great line from Mr Woods

  • “Already in 1936, although I had been bewildered by it, I had seen clearly and predicted that The General Theory would have a quite unparalleled influence by reason of what I judged to be its demerits as a contribution to thought. Its policy implications appeared to have been chosen for their political attractiveness.”

    (Wm. H. Hutt — “The Keynesian Episode”, 1979, “Prologue”, p. 11, emphasis original)

    Keyensianism is one the master-strokes of cynical delusion in our times.

  • Hugo

    I think of Keynes as much like today’s public intellectuals – his primary aim was to continue to be viewed as a public intellectual, publishing for the sake of publishing and contradicting himself changing his mind all the time. Of course, as you say, what he said was music to the governments’ ears, providing an apparent justification for their expansion.

    However, WW2 did end the Great Depression. Not, of course, because of government expansion, but because it reversed Hoover and Roosevelt’s bad policies of trying to increase real wages when they should have been letting them fall.

    It is common and indeed conventional knowledge that only World War II ended the Depression. It is also generally understood why the War did that, with millions of men drafted into the armed forces and the government borrowing and spending mountains of money on war production. What is less often acknowledged is that the New Deal as such thus failed to end to the Depression. Nor is it generally understood why the Depression did not return in 1946, after the military was demobilized and war production ended. By all rights, nothing should have been any different from 1939. But the Depression did not return. Despite demobilization and the end of war production, unemployment in 1946 was 3.9% and in 1947 3.9%.

    So why didn’t the Depression return in 1946? Because wages were frozen even while the money supply was inflated with the war spending. This drove down real wages, the opposite of the consistent policy of Hoover and Roosevelt for a decade to drive up wages. In 1946, wages were low enough to clear the employment market. If employers could then hire workers at a market wage, and produce consumer goods, business could get back to normal. It did.


  • Brian, follower of Deornoth

    Intriguing, isn’t it, how many people claim that WWII ended the depression without realising that they are at the same time admitting that eight years of the new deal failed to do so.

  • We went through a period of panic about the Japanese in the late 1980s and early 1990s, in which there seemed to be great fear that their superior business methods and understanding of the world blah blah blah would overwhelm the economies of the west. That obviously didn’t happen, but even so, for a very long time after that I often had great difficulty convincing people that Japan was in recession / any aspect of Japanese society or the Japanese state could be less than sophisticated and modern / the Japanese government was venal, corrupt, and on policy matters wrong. This was possibly exacerbated by the fact that a lot of the left wanted to believe that it was Japanese state industrial policy that had made Japan rich. This is largely popycock – this book is a decade old now but does a good job of explaining how innovation in the Japanese electronics industry came from just about everywhere other than state favoured companies – but it was what people wanted to believe.

    I think there are still lingering remains of this attitude to Japan. Japan remains a rich country and on the surface does not look like a country that has suffered 20 years of economic failure, and there are still some very fine Japanese based multinational companies, even if in a lot of cases you don’t find much answer to the question “What have they invented lately?”. So the message from Japan – a very stark one if you go beyond the surface – is not seen or not believed.

  • The Japanese government is drowning in enormous and growing debt, even though Japan has the highest corporate tax rate in the civilized world, and is no tax haven by any stretch of the imagination when it comes to personal taxes. It is becoming increasingly hard to squeeze more taxes out of the Japanese economy. The Yen has been strengthening, which is a millstone on the neck of the export-oriented Japanese industry. The population is shrinking, especially that of working (and tax-paying) age. Furthermore, the Japanese have been enjoying a Clinton-style peace dividend for the last six decades in terms of light spending on defense – “we are pacifists now, let the Americans defend us”. Yeah, well, now they’ve got a very assertive, industrialized China next door, a nut job in North Korea, and a “new” America that does not seem to be as eager to defend them – even if it formally keeps them under a nuclear umbrella. What’s a government to do?

    Borrow and spend? It tried the Keynesian prescription in the 90’s, spending over 100 trillion yen in 10 fiscal stimulus packages. That not only did not help, it also made things worse, since the spending was concentrated into politically favored industries, notably construction, which took a vicious hit in 1989-1992, with real estate prices falling by 80%. Only a government bureaucrat-genius can think you can cure a burst oversupply bubble by supplying more of the good that you have a glut in. A good chunk of the money also went into keeping zombie companies “alive”, even though they could never realistically be expected to become profitable and viable again. Even Paul Krugman, back when he was a reasonably bright economist, wrote: “Japan’s postal savings system which channels money into public works projects that have little if any social payoff, is monumentally inefficient; so is the practice of rolling over the debts of companies that will never regain profitability and hence keeping capital employed producing what nobody wants.” (Krugman 2001) What those stimulus packages did accomplish was to predictably and spectacularly expand public debt to unheard-of proportions. So to borrow now is kinda difficult, and it would help as much as it did in the 90’s, unless you believe that politicians can stop being politicians.

    Reflate? The monetarist prescription was tried as well. The discount rate was lowered from 6% in 1990 to 0.5% in 1995, and held there for five years. M2 grew in this period at about 2.5% per annum. This did not translate into commensurate credit expansion – the banking system was clogged with bad loans. Even an abbreviation solution was tried – yes, TARP, TALP, PPIP, etc. have a venerable predecessor – the Fiscal Investment and Loan Programme (FILP), which tried to extend loans by bypassing the banks, and loaning directly to businesses. Extend them it did, but surely enough mostly to the businesses best connected to the LDP, not to the ones that generate growth.

    Shrink, cut spending, and deregulate? Okay, comical relief break over. That would be a bit too Austrian, we cannot have such nonsense.

  • Johnathan Pearce

    Plamus, thanks for the great detail!

  • Capitalist

    I’ve always thought that Keynes is venerated simply because his theory provides justification for the statist impulses / pathological need for control of the Left.

    Rather like global warming / climate change – everyone knows the theory is tosh, but it’s a great excuse to beat up on the individual.

  • Capitalist – It is a pleasant but self-defeating delusion to assume that everybody knows AGW is tosh. They, particularly the specialists in pertinent sciences, by and large are pretty sure that it is somewhere between a plausible concern and a clear and present danger. The greatest real danger there actually lies in the tendency of libertarians and statists to unite in accepting a tacit and poisonous corollary – namely, that if present industrial activity is leading to troublesome rises in global temperatures, then central economic planning is a rational response.

    Because central planning has such a marvellous environmental record, and real stable ecologies so often work on the principle of, “Did those coyotes have a permit for that?!”

    Take away natural scientists’ self-serving technocratic biases and genuine economic illiteracies, and you don’t take away the problems their theories may pose – only the bad solutions they offer. Should humanly controllable climatic shift prove a real and severe menace, my own take is that smaller government and better property rights must become several notches more urgent, if the result is not to be disastrous.

    Keynsianism, by contrast, strikes me as a lucratively technocratic solution, doomed to perpetual and fruitless search for a relevant problem.

  • Pat

    To pinch a point from another commenter on another blog- if the second world war stopped the great depression, why not do it again? No need for the deaths- just build all the hardware, take it to the middle of the ocean, and destroy it. That should work.

  • Alice

    “Should humanly controllable climatic shift prove a real and severe menace, my own take is that smaller government and better property rights must become several notches more urgent …”

    Interesting take, Gray Woodland. The Obama Adminstration’s net snooper has already identified your location and “help” is on the way.

    Seriously, I have never before heard the argument that Alleged Anthropogenic Global Warming required us to cut the size of government. Good luck with that — although you will probably get the same response from the Beautiful People as those who point out that if CO2 is going to destory the planet, we need nuclear power, and soon!

    By the way, Alleged Anthropogenic Global Warming is (scientifically speaking) tosh. Little things, like the absence of a correlation between CO2 and temperature, and the inability of the theory to make testable predictions which turn out to be right. Lots of real scientists make those points — but carefully, in moderate language. Otherwise government grants tend to go away.

  • Even so, I do kind of wonder if Keynes would be embarrassed by some of the people who claim his name as justification for their views.

    I seem to remember Hayek saying that he hoped he would not have followers because the followers were always so much worse than the leader. I think he was specifically thinking of Keynes but I think it would wise for the followers of von Mises to bear it in mind.

  • RHSwan

    But you guys don’t understand. The right guys are in charge this time and besides … this time it’s different.


  • Paul Marks

    Yes WWII did de facto break the back of (previously government supported) union power – and (in a very ham fisted way) allowed the labour market to clear.

    Contrary to Clive James (remember Mr James is about the most moderate voice on the BBC – often attacked by the “mainstream” hard left there for his support of people being allowed to doubt “climate change” and so on) people were not “beaten up and shot” for “going on strike in Detroit in the 1930s”.

    Actually people were beaten up for NOT going on strike – and the only time violence was used AGAINST strikers was when they tried to attack people (“scabs”) going into company property.

    They could stay home “on strike” as much as they liked – but that was not enough, they wanted everyone else to be “on strike” as well (whether they wanted to be or not).

    With World War II “Ford bashing” and so on suddenly stopped (in spite of Henry Ford himself dodgy associations back in the very early 1930’s). In fact the United States is the only example a country where “big business” had more freedom during World War II than it had before World War II (there were government controls – but compared to Nazi Germany, the United States was very free market, as far as large business was concerned, during World War II).

    However, we must not lose sight of the fact that Robert Higgs is right (correct economically – although not politically) World War II was a net economic LOSS it did not “restore prosperity” (WWII income and GDP stats for the war years are artificial in the extreme).

    It was the “do nothing” Congress elected in 1946 that “restored prosperity” – that and the fact that Harry Truman was slow to put his statist desires into effect in 1945 and most State governments did not do much statism after World War II either.

    Post war United States was almost the opposite of post war Britain – the gap (in statism) reached its peak in 1948 (a vast gap – it makes no sense to even consider Britain and the United States the same sort of economy in 1948) and (sadly) America has been “catching up” with British statism since then.

    On Japan and the United States.

    There is a difference.

    The policies the United States is now following are much WORSE than the polices Japan followed.