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March 18, 2014

More Mean Spirited Thrashing of Conventional Wisdom

frog_and_toad.jpgInteresting piece in The Economist:

Hayek, in the 1970s, came to be seen as opposing everything Keynes and the Keynesian consensus stood for. More recently, many see the change towards more free-market ideas since the 1980s as the victory of Hayek's ideas over Keynes'—a process that has since reversed as a result of the Great Recession. This academic battle of ideas has even made its way into popular media. On Youtube, there is a series of rap parody videos of the academic battle between Keynes and Hayek, available here, here and here.

But Keynes himself in fact did not dislike many of Hayek's ideas in the "Road to Serfdom". On the contrary, he had indirectly helped Hayek to write it. When Hayek and the rest of the London School of Economics moved to Cambridge in 1940 to escape the Blitz in London, Keynes found him rooms at his college, King's, to live and work in, and the two remained in regular contact until Keynes' death in 1946. Ideologically, they also sang from the same hymn sheet: both were liberals with a distaste for authoritarian regimes such as communism and fascism. Keynes agreed with Hayek that fascism was not a healthy reaction against communism, as many contemporaries in Britain thought, but was instead equally dangerous for liberalism.

Keynes rejected the populist interpretation of Hayek's argument—that any increase in state planning is the first step on the way to tyranny—but agreed with the overall view that the bounds of state intervention needed to be clearly defined for liberal democracy to remain safe (and more explicitly than even Hayek himself did in the book). Receiving an early copy of the "Road to Serfdom" from Hayek personally, Keynes wrote back to him, praising the book. But Keynes thought Hayek should have been more explicit in what sort of red lines would be necessary for increased state intervention not to imperil liberty:

“You admit here and there that it is a question of knowing where to draw the line. You agree that the line has to be drawn somewhere, and that the logical extreme [total lassiez-faire policies] is not possible. But you give us no guidance as to where to draw it...as soon as you admit that the extreme is not possible and that a line has to be drawn, you are, on your own argument, done for, since you are trying to persuade us that as soon as one moves an inch in the planned direction you are necessarily launched on the slippery slope which will lead you in due course over the precipice.”

In short, Keynes took the lessons of Hayek's work as a warning that the expansion of state should be limited and politicians need to know when to stop—which he fundamentally agreed with. Although he thought more state control in some areas may be justified, governments always need to demark a line beyond which they do not traverse.

Yesterday the Editorial Staff learned (via Cathy Young) that Christina Hoff Sommers - a writer we had assumed leaned decidedly to the political right - is in fact a Democrat. Today we learn that Keynes and Hayek agreed that firm lines need to be drawn to prevent big government from trampling individual liberty.

The real world is always so much more complex and interesting than the simplistic stories we tell ourselves.

Posted by Cassandra at March 18, 2014 07:20 AM

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Keynes would be horrified at how his economic theory (not to mention his name) have been abused by advocates of central planning (aka "Kenyans").

Posted by: spd rdr at March 18, 2014 09:55 AM

I will admit to knowing little more about Keynes' theories than I've gleaned from taking several undergrad Econ courses (IOW, a high level overview) and reading magazine and newspaper articles.

This is precisely enough to know that Keynesian economics are often conflated with socialism and communism (something Keynes apparently was no fan of if this quote is accurate):

How can I accept the Communist doctrine, which sets up as its bible, above and beyond criticism, an obsolete textbook which I know not only to be scientifically erroneous but without interest or application to the modern world? How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeoisie and the intelligentsia, who with all their faults, are the quality of life and surely carry the seeds of all human achievement? Even if we need a religion, how can we find it in the turbid rubbish of the red bookshop? It is hard for an educated, decent, intelligent son of Western Europe to find his ideals here, unless he has first suffered some strange and horrid process of conversion which has changed all his values.

Me-ouch, girlfriend! :p

Posted by: Cassandra at March 18, 2014 10:19 AM

”The real world is always so much more complex and interesting than the simplistic stories we tell ourselves.”

It’d make a fine law – as good as any of the physical laws of nature.

I’d note also in the case of Keynes that a cursory look outside the pages of his theories and into the apothegm‘Cherchez la femme’ would have revealed unimaginable complexity of theoretical proportions. The queer theoretician married a Russian ballerina and, it seems, lived happily ever after. There are more things in heaven and earth etc. and so on.

Posted by: George Pal at March 18, 2014 10:31 AM

...as good as any of the physical laws of nature.

Indeed, so far at least it's a corollary to all of our expressions of the physical laws of nature.

Posted by: Grim at March 18, 2014 01:02 PM

FYI, even Keynes admitted some of his own most central points were crap (ok, he actually said mistaken) before he passed; most importantly that his assumption that the 'long' term did not matter for fiscal policy.
(as an aside, part way through FDR's overlong presidency his Treasury Secretary that the gov't spending program was not only not working, but that it was accumulating an unsupportable debt.
. . . and Keynes' central assumption that gov't fiscal policy could be determinative for macroeconomic policy was both central to the tenants of Socialism, and have been repudiated by empirical evidence.
>>> even Keynes' most loyal acolytes have admitted various errors, which is why they now choose to call themselves neo-Keynesians.

Damnit Spd, get out of my head!

Very Best Regards,

Posted by: CAPT Mike at March 20, 2014 07:14 PM