Posts tagged with: Keynesian economics

Blog author: jballor
posted by on Wednesday, December 11, 2013

Broken bank 02In yesterday’s edition of The Transom, which I highly recommend, Ben Domenech included a discussion that places the debates over raising the minimum wage within the broader context of the effects of inflation more generally.

Here’s a section:

There shouldn’t be any debate about the reality of the problem that the costs of basic staples, health care, and higher education are chewing up ever-increasing portions of the median family budget which is, in inflation-adjusted terms, smaller than it’s been since 1995. According to the Bureau of Labor Statistics, over the past five years, the average prices for all goods are 7.7% higher; the average price of bread is 10.4% higher; and the average price of meat/poultry/fish/eggs is 16.2% higher. In the past decade, the average worker has paid 89 percent more toward their health care benefits, while their wages grew 31 percent. The rising costs of the government-fueled higher education bubble makes American parents concerned they can no longer afford to send their kids to college. On top of it all, Americans no longer feel confident about their ability to find a new job which can pay them enough to make up for the costs of these goods and services.

The problem is not that the cost of unskilled labor is too low. The problem is the costs of what workers can buy with the fruits of that labor are too high. And the reason for that is largely due to government and systems which socialize risk and insulate producers from reality, not the realities of a competitive marketplace.×9 Those who favor a free market response to these inequality-related concerns ought to view the minimum wage push as an opportunity to put forward an agenda that speaks to these real concerns with a gas & groceries agenda. This is not going to be solved by more government requirements which raise the cost of labor and will absolutely lead to more low-skilled unemployment: it is with an agenda that would smash the insulated systems which have led to these higher costs.

Ben goes on to outline in some detail what an agenda might look like, which includes “ending the government’s management Soviet-style programs of dairy and raisins.” Horror of horrors, the Daily Beast and dairy producers would have us believe that the result would be $8/gallon milk. I can’t be the only one who wonders what the market price of commodities from milk to oil and sugar might be without various protectionist measures and subsidy schemes.

Ben ends the section with a key question: “Some Republicans have taken up more populist anti-corporatist and anti-cronyist arguments in recent months, because they can read the same polls we do. But will they stand up to cronyism, or are they just interested in demagoguery on the issue until they hold the reins of power again?”

Tyler Cowen has an interesting column in last Sunday’s New York Times, arguing that despite run-of-the-mill objections to “cold” and “heartless” economic analysis, economics is, as a science, “egalitarian at its core”:

Economic analysis is itself value-free, but in practice it encourages a cosmopolitan interest in natural equality. Many economic models, of course, assume that all individuals are motivated by rational self-interest or some variant thereof; even the so-called behavioral theories tweak only the fringes of a basically common, rational understanding of people. The crucial implication is this: If you treat all individuals as fundamentally the same in your theoretical constructs, it would be odd to insist that the law should suddenly start treating them differently.

James Poulos offers an healthy response, reminding us that “no matter how solid the economic foundation for moral egalitarianism, there’s a thing or two of great moral significance that’s missing.”

Indeed, in attempting to avoid the cliché of cold-heartedness, Cowen risks perpetuating a different one: that economists ignore the mystery and spiritual significance of humanity and human behavior. The instilling of egalitarian sensibilities when it comes to seeing people as people is one thing, but part of this reorientation needs to include a recognition of the features that make each us different. Leveling things is helpful when the earth is rocky, but the bigger problem for the modern economist seems to be his propensity to create craters in the pretty green grass. (more…)

Over at AEIdeas, James Pethokoukis challenges our attitudes about work and leisure by drawing a helpful contrast between economists John Maynard Keynes and Deirdre McCloskey.

First, he points to “Economic Possibilities for our Grandchildren,” in which Keynes frames our economic pursuits as a means to a leisurely end:

Thus for the first time since his creation man will be faced with his real, his permanent problem-how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.

The strenuous purposeful money-makers may carry all of us along with them into the lap of economic abundance. But it will be those peoples, who can keep alive, and cultivate into a fuller perfection, the art of life itself and do not sell themselves for the means of life, who will be able to enjoy the abundance when it comes.

Then, he draws the contrast, relying on Deirdre McCloskey’s The Bourgeois Virtues: Ethics for an Age of Commerce. In the book, McCloskey quotes Studs Terkel, who eloquently describes a job “as a search, too, for daily meaning as well as daily bread, for astonishment rather than torpor; in short, for a sort of life rather than a Monday through Friday sort of dying.” (more…)

Hurricanes almost always leave two things in their aftermath: broken windows and articles advocating the broken window fallacy.

As economist Don Boudreaux wrote earlier today, “Americans will soon be flooded by commentary that assures us that the silver lining around the destruction caused by hurricane Sandy is a stronger economy. Such nonsense always follows natural disasters.” The only detail Boudreaux gets wrong is that such nonsense has preceded the actual disaster. The Atlantic, wanting to get a jump on being wrong, published an article today at noon arguing that Hurricane Sandy will “stimulate the economy” in two ways:

First, the threat of a dangerous event pulls economic activity forward. Families stock up on extra food and supplies to prepare for a disaster. Second, and much more significantly, the aftermath of storms requires “replacement costs” that raise economic activity by forcing business and government to rebuild after a destructive event.

Frederic Bastiat provided the ultimate rebuttal to this spurious thinking 162 years ago in his essay ‘That Which is Seen, and That Which is Not Seen.’ So why do we people make the same claim that destruction is economically beneficial? Could it be that people are simply unaware of Bastiat’s “parable of the broken window”?

Back in August economist Bryan Caplan asked why the one group that should be familiar with Bastiat’s essay—economists—don’t universally love it:

That seems to be the story, based on what Veronique de Rugy has written at National Review Online. Calling for tax increases in an economic downturn doesn’t make any sense, even under Keynesian theories. So why do so many Keynesians seem to be supporting the idea of allowing tax increases for those earning more than $250,000 a year?

Reason Magazine expanded on this question on their blog. They argue that this trend reveals more about neo-Keynesians like Paul Krugman than it does about the actual accomplishments or shortcomings of John Maynard Keynes. (more…)

A practical man?

On the American Spectator, Acton Research Director Samuel Gregg examines the baleful influence exerted on economic thought and public policy for decades by John Maynard Keynes. Gregg observes that “despite his iconoclastic reputation, Keynes was a quintessentially establishment man.” This was in contrast to free-market critics of Keynes such as Friedrich Hayek and Wilhelm Röpke who generally speaking “exerted influence primarily from the ‘outside’: not least through their writings capturing the imagination of decidedly non-establishment politicians such as Britain’s Margaret Thatcher and West Germany’s Ludwig Erhard.” Perhaps not so surprisingly, many of Keynes’ most prominent devotees are also “insider” types:

The story of Keynes’s rise as the scholar shaping economic policy from “within” is more, however, than just the tale of one man’s meteoric career. It also heralded the surge of an army of activist-intellectuals into the ranks of governments before, during, and after World War II. The revolution in economics pioneered by Keynes effectively accompanied and rationalized an upheaval in the composition and activities of governments.

From this standpoint, it’s not hard to understand why New Dealers such as John Kenneth Galbraith were so giddy when they first read Keynes’s General Theory. Confident that Keynes and his followers had given them the conceptual tools to “run” the economy, scholars like Galbraith increasingly spent their careers shifting between tenured university posts, government advisory boards, international financial institutions, and political appointments — without, of course, spending any time whatsoever in the private sector.

In short, Keynes helped make possible the Jeffrey Sachs, Robert Reichs, Joseph Stiglitz’s, and Timothy Geithners of this world. Moreover, features of post-Keynesian economics — especially a penchant for econometrics and building abstract models that borders on physics-envy — fueled hopes that an expert-guided state could direct economic life without necessarily embracing socialism. A type of nexus consequently developed between postwar economists seeking influence (and jobs), and governments wanting studies that conferred scientific authority upon interventionist policies.

Read Samuel Gregg’s “The Madness of Lord Keynes” on the American Spectator.

Blog author: kspence
posted by on Friday, November 11, 2011

Last week the Acton Institute hosted its third annual Chicago Open Mic Night downtown at the University Club. Three panelists answered questions about — you guessed it — economics and a virtuous society from the audience.

Acton executive director Kris Alan Mauren emceed the event, and our president Rev. Robert A. Sirico was the first panelist. Heather Wilhelm, a senior fellow at the Illinois Policy Institute and a columnist for, and Brian Wesbury, chief economist at First Trust Advisors and a frequent guest on Fox, CNBC, and Bloomberg TV, rounded out the panel.

The general theme of the night was something like, “how do we get the economy going again?” The panel’s general answer was optimistic: “It already is — just keep government out of the way.”

Mr. Wesbury was back after his popular commentary last year, and he delivered again this year: the last questioner got a friendly-but-stern talking-to after asking how the U.S. economy could possibly keep chugging along after the blows it has been dealt since 2008.

Whether the question was about the role of the Federal Reserve, the desirability of continued stimulus, or presidential candidates’ tax policy, the panelists generally agreed: the parts of the economy that government (particularly the Federal Government) hasn’t tried to help are doing much better than sectors like housing where sophisticated Keynesian policy instruments have been brought to bear.

Wilhelm quoted H.L. Mencken to great effect: “The urge to save humanity is almost always a false front for the urge to rule it.”

The task for current generations, Sirico said, is to learn from the failures of the baby boomers and to take up wholeheartedly the task of rejuvenating the culture, and he sees in the Tea Party, in homeschooling movements, and in a return to traditionalism, signs that that moral rejuvenation is happening.

Special thanks to Mr. Jim Healy (center, with guests)

Open mic night as it happened

Blog author: kspence
posted by on Wednesday, October 12, 2011

Acton director of research Samuel Gregg offers his thoughts on last night’s GOP Roundtable in this NRO Symposium. Gregg thinks the debate offered an important alternative to the government-driven economy talk that fills the news every other night of the week.

In a week in which two American economists from the non-Keynesian side of the ledger received the Nobel Prize for Economics, last night’s GOP debate gave us some insight into the depth and character of the various candidates’ free-market commitments and the different policy priorities which flow from the various forms of those commitments.

But if the ideas were strong, they were a reminder of separation between our free market ideals and our considerably less free economy:

For the most part, the candidates focused upon the institutional background that either impedes or facilitates economic growth: the regulatory environment, tax levels, trade policy, monetary policy, etc. Listening to the responses was a salutary reminder of the gap betweenAmerica’s free-market aspirations and rhetoric, and the rather different Eurosclerotic economic reality that has slowly envelopedAmerica– and not just over the past three years, but over several decades.

The only way we’re really going to get our economy going, is by addressing entitlements.

The surprising omission was substantial discussion of the issue of welfare reform and the related question of America’s public debt. While Obamacare was continually criticized because of its costs, that’s only part of the picture. Substantive entitlement reform is indispensable if we want to significantly reduce the spending and deficits that threaten to suck the life out of America’s economy. Addressing this subject is of course very politically risky because far too many Americans are more attached to the welfare state than they care to admit. But if fiscal conservatives aren’t willing to tackle this issue, then who will?

Over at National Review Online, a panel of experts reacts to last night’s jobs speech by President Obama. Acton’s director of research, Samuel Gregg, was not encouraged by what he heard: a jumble of disproven Keynesian theories and strong-man rhetoric. Gregg’s commentary in full:

Tonight’s speech was more of the same. President Obama’s hectoring lecture reflected the usual fare of Keynesianism mixed with mild nods to the private sector that we’re come to expect. It also embodied an abiding faith in government that would be touching if it weren’t so detached from economic reality. Granted, Paul Krugman will surely bewail that the president didn’t go far enough with this third stimulus plan. But that’s what it is.

There was much talk about fixing infrastructure. Public works is something even Adam Smith thought the state should do. But haven’t we been here before? Didn’t we hear something about “shovel-ready” jobs a while ago? Why should this time be different?

Likewise, on the president’s reference to mortgage relief: When will he understand that policies that slow down the market-clearing process merely prolong the pain?

Naturally, there was the now-monotonous call to increase taxes on those who, well, already pay most of the taxes. These are the same individuals and businesses whose capital fuels the creation of jobs—not the personifications ofAmerica’s economic problems who were sitting with the first lady: GE’s Jeff Immelt, the face of American corporate welfare, and the AFL-CIO’s Richard Trumka, the symbol of union obstructionism.

Over and over again, the president insisted: “You should pass this jobs plan—right away.” I thought the legislature’s job was to carefully assess legislation, not just roll over because the boss wants something. Such rhetoric—and the speech’s substance—suggests the president has never really left the mental horizons of Chicago politics. America is the poorer for it.


According to the National Bureau of Economic Research, the Great Recession ended almost two years ago, in the summer of 2009. But we’re all uneasy. Job growth has been disappointing. The recovery seems fragile. Where should we head from here? Is that question even meaningful? Can the government steer the economy or have past attempts helped create the mess we’re still in.

John Maynard Keynes and F. A. Hayek never agreed on the answers to these questions and they still don’t. Let’s listen to the greats. See Keynes and Hayek throwing down in “Fight of the Century”.