Simon Wren-Louis does a very bad thing by reminding me of this:
John Cochrane: Keynes left Britain 30 years of miserable growth…. Keynes disdained investment…. Keynes did not think at all about the incentives effects of taxes. He favored planning, and wrote before Hayek reminded us how modern economies cannot function without price signals. Fiscal stimulus advocates are hanging on to a last little timber from a sunken boat of ideas, ideas that everyone including they abandoned, and from hard experience…
Let's give the microphone to John Maynard Keynes, 1936, who as far as I can see had absolutely nothing to learn from Friedrich von Hayek about the benefits of the price mechanism:
In some other respects the foregoing theory is moderately conservative…. The State will have to exercise a guiding influence on the propensity to consume partly through its scheme of taxation, partly by fixing the rate of interest, and partly, perhaps, in other ways. Furthermore, it seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment…. But beyond this no obvious case is made out for a system of State Socialism….
[If we] succeed in establishing an aggregate volume of output corresponding to full employment as nearly as is practicable, the classical theory comes into its own again…. [T]here is no objection to be raised against the classical analysis of the manner in which private self-interest will determine what in particular is produced, in what proportions the factors of production will be combined to produce it, and how the value of the final product will be distributed…. [T]here is no objection to be raised against the modern classical theory as to the degree of consilience between private and public advantage in conditions of perfect and imperfect competition…. When 9,000,000 men are employed out of 10,000,000 willing and able to work, there is no evidence that the labour of these 9,000,000 men is misdirected. The complaint against the present system is not that these 9,000,000 men ought to be employed on different tasks, but that tasks should be available for the remaining 1,000,000 men. It is in determining the volume, not the direction, of actual employment that the existing system has broken down….
[T]he traditional advantages of individualism will still hold good. Let us stop for a moment to remind ourselves what these advantages are. They are partly advantages of efficiency — the advantages of decentralisation and of the play of self-interest. The advantage to efficiency of the decentralisation of decisions and of individual responsibility is even greater, perhaps, than the nineteenth century supposed…. [A]bove all, individualism, if it can be purged of its defects and its abuses, is the best safeguard of personal liberty… greatly widens the field for the exercise of personal choice… best safeguard of the variety of life… the loss of which is the greatest of all the losses of the homogeneous or totalitarian state. For this variety preserves the traditions which embody the most secure and successful choices of former generations; it colours the present with the diversification of its fancy; and, being the handmaid of experiment as well as of tradition and of fancy, it is the most powerful instrument to better the future.
Whilst… [the policies I recommend] would seem to a nineteenth-century publicist or to a contemporary American financier to be a terrific encroachment on individualism. I defend… [them] as the only practicable means of avoiding the destruction of existing economic forms in their entirety and as the condition of the successful functioning of individual initiative.
For if effective demand is deficient… the individual enterpriser who seeks to bring these resources into action is operating with the odds loaded against him. The game of hazard which he plays is furnished with many zeros, so that the players as a whole will lose if they have the energy and hope to deal all the cards. Hitherto the increment of the world’s wealth has fallen short of the aggregate of positive individual savings; and the difference has been made up by the losses of those whose courage and initiative have not been supplemented by exceptional skill or unusual good fortune. But if effective demand is adequate, average skill and average good fortune will be enough…
The sheer depths of the ignorance--the failure to have done and to do their most basic homework--that we have faced from the Right over the past four years has been literally indescribable.
It is in this context, I think, that you have to read our annoyance--indeed, our HSRILL!1!-ness at the concern-trolling of Tyler Cowen and company like:
Tyler Cowen: Krugman calls himself a Humean but has he studied and internalized the lessons from Hume’s Dialogues Concerning Natural Religion? Is it easy to imagine the current Krugman writing rich multi-voiced dialogues which extend both his points and those of his intellectual opponents? Can you imagine the current Krugman writing something sufficiently multi-faceted that you might come away thinking — because of the piece itself — that the opposing point of view was the better one? Krugman has shown a remarkable and impressive capacity to reinvent himself, more than once. He could reinvent himself again — in a truly Humean direction — and become the most important American public intellectual — and perhaps intellectual — of his time.
There are, it seems to us (or, rather, to me), two intellectual sides here. One consists of a lot of people trying to grapple with a confused, uncertain, and near-desperate situation (and advocating policies like housing finance reorganization, nominal GDP targeting, expansionary fiscal policy, etc.). The other consists of a bunch of rather lazy ideologues who haven't done and won't do their homework talking bullshit and trash.
And now comes what claims to be a third side: the Tyler Cowens of the world who say that we are in some sense blameworthy for not making silk purses out of cow's ears--for not turning bullshit and trash-talk into "rich multi-voiced dialogues… sufficiently multi-faceted that you might come away thinking — because of the piece itself — that the opposing point of view was the better…"
Our response: Help us wash out the bullshit and clean up the trash, first.
Start by saying things like: Yes, right now it looks like financial markets are telling us that the United States--and Germany, and Japan, and Britain, and other credit-worthy sovereigns--have enormous amounts of unused debt and risk-bearing capacity. Right now there is a strong case for experiments to try to use that capacity to rebalance aggregate demand and supply--through more aggressive unconventional monetary policy, through banking and financial market policy, through fiscal policy. Such policies will run into problems of implementation, of sustainability, of public choice, and of appropriate unwinding strategies that will limit how far we can extend expansionary policies. But right now the position of the Right and the Center--the position that we need immediate contractionary action now before the bond market vigilantes come to kill us all--is simply wrong as a matter of evidence and as a matter of theory.
Say things like that.
Say them loudly.
And when our current task is done, then we can write subtle dialogues.
But crying "FIRE! FIRE!" in Noah's Flood is not attractive. And demanding that we somehow make crying "FIRE! FIRE!" in Noah's Flood is little but a second-order meta-cry of "FIRE! FIRE!", and is not attractive.
UPDATE: Note that it is not just us. I think of, among others, poor Jon Gruber--whose objections yesterday to demands for Single Payer Health Care or FEHBP-for-all were all ones of political practicality--standing there in Escapist Comics on Claremont giving the Heritage-Romney intellectual argument for the Affordable Care Act as optimal policy because all of its real advocates have shown exactly how lily-colored their livers are. And I think of people like Rob Stavins, who had hoped to be part of a centrist bipartisan environmental-policy coalition, and who find now that the Republicans who they had thought were technocratic carbon-tax advocates are as cowardly and as absent as…