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Paul Marks holds the line in his worthy ongoing mission to rubbish Keynesianism
Some time ago I sent in a blog claiming two things – first that many of the doctrines of Keynesianism were nonsense, and secondly that one did not need to be an Austrian economics person to see this.
I have had some replies to what I wrote. No one has claimed that one needs to be an Austrian school person to see there is something very wrong with Keynesianism (that no one claimed this surprised me – but then I am an Austrian school person myself).
Some people opposed my opinion that Keynesianism is nonsense (and opposed my strong language with strong language of their own). However, no one has produced any evidence in favour of Keynesianism – either directly or via the books they have suggested I read.
Such concepts as the ‘multiplier’ (presented in almost all basic economics text books) remain without argument in their defence. The idea that government can help the economy by (for example) issuing money and using this money to buy sand and hire people to shovel this sand into the sea, is absurd. To teach such doctrines someone must either be a knave (someone who teaches something he does not believe), or a fool (someone who believes nonsense).
Of course even if one insisted that government ‘investment’ actually be about buying capital goods (rather than ‘investment’ simply being another word for government spending) the idea would still make no sense – investment must be based on real saving (not credit money games).
It is tragic that fallacies refuted by such men as Bastiat almost two centuries ago (such as the fallacy of the broken window) are treated as ‘scientific’ by the vast majority of basic economics text books (often with lots of formulas and pseudo scientific language shoved in to try and hide the basic absurdities).
Even as I type this many nations in the world are undergoing rapidly rising prices (and prices rising at an increasing rate) whilst at the same time these nations have falling output and rising unemployment. If Keynesianism means anything the above should not be possible.
An Austrian economics person does not rely on empirical examples, but such examples are noteworthy. When one sees the rising inflation, falling output and rising unemployment of such nations as Venezuela and Argentina the concepts of Keynesianism fall apart. As some of these nations export oil and some import oil the idea that ‘oil shocks’ are a magic way out for the Keynesianism falls apart also.
When I see that most undergraduate textbooks that do not have concepts such as the various ‘multiplier’ in them (or treat such concepts with the contempt they deserve) then I will apologise for being too hard on the economics profession. I would apologise if even ONE textbook recommended at a British state university exposed such concepts as nonsense.
As far as I am aware no apology is in order at this time.
Paul Marks
Alan Greenspan, the chairman of the United States Federal Reserve, has delivered a rather splendid kick in the orbs to the pro-€uro/anti-sterling campaign. Greenspan said whilst speaking in the City of London (London’s powerful financial district):
The City of London is thriving outside the eurozone and has not suffered from Britain’s decision not to join the single currency in the first wave […] and was a sterling place to do business. London has stayed on top in the provision of financial services despite the euro…
Now I am no fan of the whole concept of central banking (and hence no fan of central bankers) but the fact is it would be bonkers to deny that Alan Greenspan is probably, hell, certainly, the most influential voice on the subject of economic affairs alive in the world today. His remarks are therefore going to cause some gnashing of teeth in certain circles, which has to be a good thing, as the pro-€uro campaign is predicated upon turning the abolition of sterling from a constitutional issue into a purely practical economic issue… and thus having Greenspan point out that Britain is managing just fine outside the eurozone is not what Brussels’ fifth column in Britain want to see splashed across UK newspapers.
Ah, but you should have seen the size of the one that got away. It was this big I tell you!
Paul Marks points out that John Maynard Keynes’ theories are not just wrong but are complete nonsense.
Libertarians tend to reject the economic doctrines of J.M. Keynes. Some people may argue (as Lady Thatcher once did) that Lord Keynes’ thought was distorted by his followers, but most people (or most libertarians anyway) would accept that Lord Keynes and/or his follows were in error in regard to the understanding of political economy.
The trouble is that most libertarians think that showing the errors of Keynesianism is very complicated and that one needs a detailed knowledge of Austrian School economics to show these errors – this is not so.
Lord Keynes’ 1936 book (“The General Theory of Employment, Interest and Money”) implies that one can increase the money supply up to the “full employment level” without a trend of rising prices (as long as the new money is spent on such things as public works – rather than being hoarded or spent on imports). However, it does not matter if one interprets the “General Theory” to hold that Keynes accepted that his policy of money supply expansion would lead to a trend of rising prices (rather than, say, just restoring the prices of goods to the level they were at before some fall in prices).
It does not matter because there is no long term trade off between unemployment and rising prices. In the 1950’s and after Keynesians played with such concepts as the “Phillips Curve” to claim that there was such a trade off – but eventually no amount of moving the curve (to fit the fact that the unemployment and inflation numbers did not fit the curve) could hide the fact that such concepts would not save Keynesianism. → Continue reading: Keynesianism is rubbish
Today in Johannesburg, the delegates at the Earth Conference moved onto the next important phase in the proceedings: water sports.
Having accepted the monumental challenge of solving the problems of poverty and environmental degradation, the delegates have maintained their unanimous opening day resolution, that they were all having far too much fun to worry about that sort of thing and that the world would be far better off if they all did as little as humanly possible during the ten-day Conference.
So, this morning, the Conference moved en masse to the Lakeside Pavilion where they will have a choice of jet-skiing, windsurfing, snorkelling or simply soaking up that radiant South African sunshine with a selection of cocktails and a trashy novel. All eyes, though, will be on the Head of the Brazilian Rainforest Foundation who is rumoured to be something of a dab-hand at Beach Volleyball.
But not all the delegates have been this proactive. Back at the hotel, Indian Development Minister Laxmi Ennerjee spent the entire day languishing in the Tropical Hothouse Spa Jacuzzi, together with his, erm, ‘Research Assistant’ Trudi. While the sparkly Trudi toyed with his greying chest hairs, the Minister lay motionless in the warm, herb-infused bubbles; his head occasionally lolling to one side in order to lick a dollop of tangerine-flavoured yoghurt from between Trudi’s quivering breasts. In an attempt to explain away this apparent lack of wordly concern, he said:
“Look, it’s really very simple. We were charged with the responsibility of ending poverty, saving the planet and maintaining an economic equilibrium between all nations and people of the entire world. But when we got right down to it”, he sighed heavily, “it was all too much like hard work and we decided that we just couldn’t be bothered”
Despite what some would regard as a refreshing candour, the delegates have, nevertheless, come under fierce criticism from Inactivists who accuse the delegates of being a part of the problem not a part of the solution. Daniel Le Thargy spokesperson for the Coalition Against Movement said:
“You just have to observe the furious vigour with which these guys play Canasta around the poolside to realise they are actually heating up our atmosphere. They should learn to do something much less productive, like sleeping. Sleeping is fun and involves no carbon emissions whatsoever.”
Denying accusations that he was simply a luddite, Mr.Le Thargy went onto to explain:
“Our aim is get Third World farmers off of their knees, and put them flat on their backs.”
But the Conference has brushed aside these protests and, following the afternoon’s recreation by the waterside, the delegates then went into a delicate round of complex negotiations, wrangling and horse-trading before a resolution was passed calling for tonight’s dinner to consist of an open barbecue with a Thai & Vietnamese theme. Speaking to a Dutch correspondent, British Prime Minister Tony Blair expressed confidence that agreed targets for at least 80% attendance at tomorrow’s Bingo & Billiards party would be met.
Daniel Antal, who is a Strategic Economic Policy Advisor to the Secretary of State for Economic Affairs and Transport in Hungary, has spotted a fascinating article about some very different protesters in Johannesburg.
It has been a while since I posted comments to Samizdata. I would just like to draw readers attention to a very interesting Reuters articles.
At the Johannesburg Earth summit, besides to usual white middle class college dropouts typically supporting ‘good causes’ against globalization, libertarian policies and effective corporations, some poor third world farmers and street traders have been demonstrating for Free Trade.
The trade debate spilled onto the streets outside the tightly guarded conference center in the wealthy suburb of Sandton, where 200 poor farmers and local street traders from nearby shanty townships shouted slogans demanding freer trade.
“We want the freedom to grow what we want, when we want, with what technology we want, and without trade-distorting subsidies or tariffs,” said Barun Mitra, an Indian farm activist leading about 30 farmers from his country.
Quite so!
Daniel Antal, Hungary
British academic John Gray, based at the London School of Economics, is well-known in Samizdata circles as the former ‘Thatcherite’ professor, author of interesting books about FA Hayek and John Stuart Mill who in the late 1980s turned sharply away from classical liberalism and embraced the doom-and-gloom agenda with the fervour of the convert. His depressing prose can be occasionally seen in such idiotarian enclaves as the New Statesman and the Guardian. OK, it’s a shame to lose a potentially good guy to the Forces of Lunacy, but such is life.
But even I did not realise that the chap has pretty much decided that the planet would be better off if we all dropped dead. Really. His pessimism has attained heroic proportions. Check out this superb piece of Fisking of the guy by leftist writer Helene Guldberg. It surely points to something pretty chilling about what some folk who use the Green banner really believe in.
Update: link and attribution now corrected
Since curbing pollution seems to rank high among the aims of the delegates in Johannesburg they could start by dissolving back into their relatively harmless constituent parts and thereby avoid releasing into the atmosphere the several thousand tons of toxic gases that will result from the mixture of bureaucratic ambition, junk science and high-octane idiocy that is currently being manifested. Just let them mingle long enough to gobble down their ostrich canapes, give them their complimentary set of South African Airways in-flight cabin slippers and let them bugger off back to Absurdistan (or ‘Europe’ as its more commonly known) or wherever else it was they came from in the first place.
This Grand Conference for Solving All The Problems In The World should, on the fact of it, at least, prove to be a heaven-sent gift for bloggers. Over the next two weeks it will produce more Fiskable material than the Daily Wanker could produce in several lifespans.
Again, on the face of it, eye-watering, snot-inducing hilarity is just about all that will actually materialise from Johannesburg. The sheer scale of the ambitions leads me to believe that it is a project that almost seems destined to fail. However, since most people believe that the way to abolish poverty and all other problems is to gather together vast numbers of Well-Meaning People together in one big room to make grand pronouncements and write lots of impressive things on lots of bits of paper, there will be months of outrage, anguish, recriminations and accusations. Angry media pundits will turn their cynical (for the wrong reasons) indignation on caught-in-the-headlight politicians who will squirm off the hook by blaming their failure on those greedy Americans who ‘steal all the world’s resources’.
Sane people, however, will look around them and note that they still have their cars, washing machines, supermarkets and flushing toilets and breathe a sigh a relief that danger has passed.
That would be wrong.
Like all such conferences there is a primary public agenda and secondary real agenda. The real agenda is to be found among the brightest and best of Tranzi talent that is among the 65,000 or so delegates and for whom ‘Sustainable Development’ is a euphamism for a Global Economic Plan. These are the direct descendants of the people who once provided the intellectual tools for the Bolsheviks and, over the next two weeks, they will formulate their plans, cement their relationships, hammer out their various protocols and generally quicken each other. By the time the other delegates have applauded the final conference condemnation of US unilaterlism, the Tranzis will have welded together the skeleton of World Government.
At just about the same time as the rest of us are watching Baghdad light up like a Christmas Tree, various innocuous-sounding International Agreements will start materialising; this is the flesh on the bones. The process will continue step by stealthy step, away from the limelight and at a safe distance from anyone anywhere who might want to vote on any of it.
The first task in defeating an enemy is identifying the enemy and the second step is knowing how they operate. So warn your family, your friends and your neighbours and ring the village bell to warn the townsfolk. Tell them that the enemy is coming and be prepared to repel all borders.
Paul Marks points out why the likes of Paul Krugman really dislike what we have to say.
Paul Krugman (the pet economist of the New York Times) is fond of sneering at the Austrian school theory of the boom-bust cycle as a ‘moral theory’.
According to Professor Krugman, Austrian school economist believe the bust is a moral punishment for the degenerate luxury of the boom.
Of course to a ‘liberal’ like Paul Krugman moral and morality are ‘boo words’ to be sneered at (unless they are talking about George W. Bush – in which case it is quite all right to talk about lack of morality). However, Professor Krugman is (I believe) up to a bit more than this here. Ludwig Von Mises was insistent that economic science be “value free” – the methods of natural science were not suitable for economics (or so Von Mises taught), but economics (like natural science) must be kept distinct from ethics. As an economist one explained the consequences of a policy – and only then did one (as a human being) decide whether these consequences were good or bad.
So by claiming that Austrian school of economics is a moral school Professor Krugman is playing the same game that Marx and Engels played with Max Stirner – knowing he was obsessive atheist (even more so than they were) they insisted on calling him “Saint Max”, “Our Saint” (and so on). Stirner had claimed that a communist society (which he opposed) would have to be based on the ethical (‘religious’) principle that equality was good (communism as an overgrown monastery) – so Marx and Engels were trying to get their own back on someone who had argued that communism was not ‘scientific’.
There is clearly a long tradition in ‘social science’ of regarding the accusation of ‘morality’ as a deadly insult, so Professor Krugman clearly knows where to hit. However, is he totally wrong? Is there no connection between Austrian economics and morality?
Murray Rothbard often argued that there was a connection between the concept of economic law and the idea of natural law in ethics.
I will not examine Rothbardian Aristotelianism in this blog but I mention it in case any one supposes that I am the first person to try and explore the connections between economic law and moral law.
Von Mises (like Carl Menger before him) based his whole conception of economics on human choice – on the reasoning “I” which decides how to act and then acts. It is true that Hayek (being influenced by determinism) did not go along with the concept of agency (the choosing agent – the “I”) but, in practice, Hayek accepted that people should be considered “as if” they were actually different from clock work toys so he need not be examined here (although I wonder who is doing the considering if Hayek himself was not an agent-subject – but simply a complex object like the rest of us supposed to be).
Mises himself was careful to never actually formally endorse the concept of free will (to do so would have been the ultimate horror in early 1900’s Vienna) but clearly (as for the Aristotelian Menger) the whole of his thought depends on man being able to think – to consider, to make choices, to be “acting man” the agent. Agency may not be ethics but it is at least a doctrine of metaphysics. This is why both Mises and Karl Popper were amused when they were accused of being ‘positivists’. The Vienna Circle would never accept any metaphysical doctrines – indeed that was the whole point of the Vienna Circle (circles with points? oh well “you know what I mean”).
Still how does all this metaphysical stuff relate to practical ‘policy issues’? Someone might accept that not allowing private ownership of the means of production and money prices derived from voluntary interaction will (eventually) lead to mass starvation, but still hold that mass starvation does not matter (the Cambridge economist Maurice Dobbs came close to this – he accepted that socialism was not as good at giving people what they wanted as capitalism was – but held that this was not relevant, as it did not matter what people wanted) surely then Mises’ distinction between economics and morality still holds? → Continue reading: Economics and Morality
William Saletan continues to live up to my expectations, which I assure you is not a compliment, with a bizarre article in Slate that contends that if a law is passed in the USA to make the level at which capital losses can be written-off against income tax more generous, that would be, wait for it, “suburban socialism”.
Fascinating. So lowering someone’s tax burden is socialism. Let’s run by that again…the state gets less of a businessman’s money, which is to say, more of the ‘means of production’ currently in private hands remain in private hands… and that constitutes socialism?
Of course I do not expect someone like Saletan to have actually read and understood any serious books on political economy, but I would expect someone who opines on economic and political issues to have read some ‘Idiots Guide to Political & Economic Systems’ so that he has at least the vaguest inkling as to what the hell socialism actually means.
The plan in question is not the state socialistically redistributing wealth by taking it (via tax) from someone and giving it to someone else. No, they are just talking about reducing the amount of theft (i.e tax) the state appropriates for certain people who have run up losses: the loss making taxpayer is not getting other people’s money, he is simply being allowed to keep more of his own money by off-setting losses. Duh.
Free marketeers in the U.S. are currently arguing in convincing terms that taxes on equity dividend payments should be scrapped. This, they argue, would end many of the pressures to inflate corporate accounts and the kind of shenanigans currently roiling the financial markets around the world. It is an interesting point, and made in great detail by blogger and economics writer Brink Lindsey.
Lindsey points out that the current problems in the financial system are a result of government intervention, such as restrictions on hostile takeovers, rather than laissez faire. Hostile takeovers, as he explains, actually keep management on their toes and can prevent, rather than cause, the kind of abuses that happened at Enron.
So perhaps we need more Gordon Gekkos and fewer Harvey Pitt’s (head of the U.S. SEC). Not an argument one is likely to read in the New York Times.
The cause of a free market in energy has been given a right bashing from the collapse of US energy trading firm Enron and the electricity blackouts in California. But it seems the guys and gals in Texas are showing that a properly deregulated energy market can really work. Here’s a chunk of a report in the Financial Times (not availiable on FT website):
Critics warned that the state would face its biggest challenge in the heat of the summer, when power usage is greatest. Yet, already mid-way through August, Texas is still passing the test, boasting 30 percent more electricity than it needs.
I would contend that the key to this success is that Texas has gone for full deregulation, rather than the dog’s breakfast of a mess created in California. In California, wholesale distributors of electricity were allowed to set their prices in a market but the retail distributors had their charges capped. When electricity prices went into hyperspace over a year ago, a lot of California’s power retailers saw their balance sheets blow up. Ultimately, if the price mechanism is not allowed to work properly, how is rising consumer demand going to create the incentive to increase production?
Of course another problem in California has been the baleful influence of the Green movement, killing things like nuclear power, but that is another argument for another time.
Paul Marks is revealed to be the hard man of the blogosphere!
Now I have stopped writing as an unbiased person (at least as unbiased as I can be) in my blog Monetary Policy I can get on to a question that interests me as a hard money faction Austrian School man.
Those of you with the courage to read my last blog (I should have made it more plain – but I lack the wit to do so) will hopefully know that a Austrian school man of my type believes that money should be based entirely on one commodity and that institutions that issue paper money (bills of credit, whatever) should actually have enough of that commodity to cover all their notes. Traditionally people of my sort have supported the so called ‘100%’ or ‘real’ gold standard (as opposed to the various statist frauds that have existed under the name of ‘gold standard’) – but actually any commodity might be used, and there might be competition between commodities – as there was (for example) in the Kingdom of Hanover before the mid 19th century. As long as only one commodity was used for each money and there were no fixed exchange rates between the commodities – if (for example) a certain amount of gold ‘has’ to buy a certain amount of silver then things are messed up.
Some people who read these blogs are well aware of the ‘Austrian’ arguments against Monetarists (that the concept of a ‘price level’ is too loose to be useful, that a price ‘index’ is a misunderstanding [even Hayek argued that himself at various times – but sometimes seemed to like the concept of a price index], and that the ‘money supply’ does not gush everywhere like water, but instead piles up like treacle – creating asset price bubbles, distorting relative prices and creating mal-investment).
However, I am not going to deal with all this here. My question is this – given that the world is not what I would wish it to be, just what will happen?
Traditionally a hard money man would say there will be a bust or a crack up boom. In a bust the government stops propping up the magic circle of ‘private’ financial institutions and other favoured business enterprises (by ‘increasing the money supply’) and the economy goes into slump. In a ‘crack up boom’ the government continues to increase the money supply (i.e. credit money) till there is vast open inflation (not just asset price inflation but ‘prices in the shops’) and a ‘flight from money’ occurs – and the thing comes to a terrible stop. The boom-bust cycle (with the crack up boom being far worse than a normal bust).
However, what happens if government continues to increase the credit-money supply, but not enough to create vast open ‘in the shops’ inflation? As the various speculations of the financial institutions and other favoured enterprises go wrong so the government increases its credit money supply to prop them up – but (by their very failures) the institutions’ own credit paper (‘broad money’ if you like ‘M3’ etc) shrinks – so there is not much actual change in what people see as the ‘price level’.
Well of course things become more and more inefficient as a greater and greater share of resources are devoted to propping up mal-investments – so there is general economic decline over time. But is there a formal big bust?
Readers of this should get to find out over the next few years – as governments seem determined to neither go for vast open inflation, or to allow the financial system to bust.
The economy will get worse – but in what way the process manifests itself will be very interesting.
Please take some time off from the simple process of survival, over the next few years, to observe and consider these matters. A bit of observation and thought will not reduce your survival chances (if survival is what interests you) – it may even help.
Paul Marks
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Who Are We? The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.
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