Tuesday, August 2, 2011
Johnny, We Hardly Knew Ye?
There are several media reports (I got mine from Rich Lowry) that Sen. Richard Durbin (D- IL) is saying that with the passage of the compromise agreement on the debt ceiling, we are witnessing "the final internment of John Maynard Keynes." As an economist, I wonder if that's true? If so, why? And, to what effect?
Are we witnessing the death of Keynes own formidable intellectual legacy? I don't think so. The death of naive post-war Keynesianism? That died during the simultaneous inflation/recessions of the 1970s. Perhaps we are witnessing the death of the facility with which those who politically favor more and more government central planning of the economy can merge Keynesian-like economic arguments with their own political agendas. But if that died, it died several weeks and months ago, as it became clear that the massive ratcheting up of the trajectory of federal spending (and with it the federal debt) has failed to solve the nation's current economic problems.
Don't take this that I am an enemy of Keynes. I'm not a macroeconomist by research field, by I teach it in principles courses and I have to keep a straight face when I discuss other economic theories that try to explain-away the disaster and misery that were the Great Depression of the 1930s. Keynes at least recognized that something was amiss.
I also think that the first Keynes versus Hayek "rap" video was fun, but I kind of wish that the creators would put it to rest. Economics shouldn't be about (although it sometimes is) some kind of zero-sum smackdown in the schoolyard at recess. It seems to me, as an outsider with no skin in the macroeconomics theory game, that there are more similarities between Keynes and Hayek that might be realized. I hear both Keynesians and Austrians talking about asset bubbles, for example. Keynes famously referred to "animal spirits". Schumpeter highlighted the crucial role of entrepreneurs. Neither Keynesians nor Austrians are fans of the static, soul-less, microeconomics of equilibrium price theory. I am sure there are others. The point is, Keynesianism may indeed be dying, but I wouldn't count out that dead scribbler John Maynard Keynes, at least not yet.