Has Keynesianism Ever Worked Anywhere?
“Forty years ago,” our own John Taylor noted here earlier this week, “in a famous debate with Keynesian economist Walter Heller, [Milton] Friedman said
‘The fascinating thing to me is that the widespread faith in the potency of fiscal policy…rests on no evidence whatsoever. It’s based on pure assumption. It’s based on a priori reasoning.’”
That got me to thinking. In the four decades since, have there been any instances in which a Keynesian fiscal stimulus has actually worked? In Canada or Sweden? In Belgium or France? For that matter, in Andorra, San Marino, Liechtenstein or Monte Carlo?
To put it another way, when Paul Krugman tells us the problem with Obama’s $800 billion stimulus is that it was too small, is there anything other than Krugman’s own theories on which he’s basing that claim? Not scratchings on Krugman's chalkboard, but actual, demonstrable human experience? At any time? In any place?
That strikes me as a darned good question. I herewith toss it into the Ricochet mosh pit.
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Jun '10
Re: Has Keynesianism Ever Worked Anywhere?
". . . for metrosexual Presidents in mom jeans."
You mean they zip up the back. How does he... Oh never mind, I just remembered sitzpinckel.
May '10
Re: Has Keynesianism Ever Worked Anywhere?
Re the point that infrastructure spending (or, say, military spending) is not stimulative: agreed. It's bad economics in the sense that it does not hasten the spring--and in fact may even delay it, much like the extension of unemployment benefits.
Still, the outrage we're seeing at the "Recovery" Act would be less if there was a sense that we were getting something tangible and useful for the expense--nuke plants, refineries, whatever. Mark, in fact, makes a similar point in the podcast: In the thirties we got the Hoover Dam; today we get a study on the feasibility of installing wheelchair ramps to the Hoover Dam or some such.
So we might have a double whammy here: A) Keynes was wrong, and B) our current government lacks the competence and can-do spirit to even create the impression that he was right.
Aug '10
Re: Has Keynesianism Ever Worked Anywhere?
Kofola
That's why simply throwing money at random construction projects doesn't work, but spending on WWII or the Marshall plan did.
Also remember that when FDR got us into WWII, he was forced to lift many of the regulations he had previously put in place to "cure the Great Depression" in order to make the war effort possible.
So which helped more? The spending during and after WWII, or the fact that pre-WWII restrictions were lifted in order to accomplish the war effort?
Jun '10
Re: Has Keynesianism Ever Worked Anywhere?
Midget Faded Rattlesnake
Kofola
That's why simply throwing money at random construction projects doesn't work, but spending on WWII or the Marshall plan did.
Also remember that when FDR got us into WWII, he was forced to lift many of the regulations he had previously put in place to "cure the Great Depression" in order to make the war effort possible.
So which helped more? The spending during and after WWII, or the fact that pre-WWII restrictions were lifted in order to accomplish the war effort? · Sep 6 at 11:52am
Excellent point!
May '10
Re: Has Keynesianism Ever Worked Anywhere?
Midget Faded Rattlesnake
So which helped more? The spending during and after WWII, or the fact that pre-WWII restrictions were lifted in order to accomplish the war effort? · Sep 6 at 11:52am
Both were relevant. I don't think you can discount the amount that the war impacted a wide swath of the American economy. Feeding and supplying a military on such a large scale required a large swath of goods from different parts of the economy, not to mention the fact that it absorbed a large chunk of the potentially unemployed. So, in the short term, the War.
The lessened economic restrictions were absolutely necessary though for the post-war boom. The lifting of restrictions allowed the war economy to successfully sustain itself, naturally, after the war ended, substituting the war demands with the new demands of the modern home and the rebuilding of Europe.
Jul '10
Re: Has Keynesianism Ever Worked Anywhere?
Peter Robinson
That strikes me as a darned good question. I herewith toss it into the Ricochet mosh pit.
Peter, referring to us as a "mosh pit" is demeaning.
We are a seething rabble, whipped into hateful frenzy by demagogues like Edward and Mollie.
Edited on Sep 6, 2010 at 2:20pmMay '10
Re: Has Keynesianism Ever Worked Anywhere?
I read one of Krugman's columns and the comments and they were convinced that Germany in fact had a stimulus bigger than ours and that is why their economy is getting better while ours isn't. I had thought that Germany decided not to go the stimulus route but they believe that it did without calling it that. And they were sure that several Oriental countries had used a stimulus successfully.
I don't know enough to judge the claims but that's what they are saying.
I have a friend who believes that the problem with our stimulus was that it was only half or a quarter of what it needed to be!
Re: Has Keynesianism Ever Worked Anywhere?
Kenneth: Peter, referring to us as a "mosh pit" is demeaning.
We are a seething rabble.
Sorry, Kenneth. You know me. Once again, straining to be hip.
May '10
Re: Has Keynesianism Ever Worked Anywhere?
To be fair, a basic principle of entrepreneurship is that you have to spend money to make money. And the most successful businesses are often those geared toward a potential market, rather than existing demand. I just don't recall giving D.C. permission to make non-essential investments with my money.
The government has had success with investments beyond infrastructure and energy. The River Walk in San Antonio is the city's epicenter of tourism, dining and other economic activity. That said, whose money did politicians spend to help San Antonio?
And there's the problem of accountability. Government is inherently not as accountable as private enterprise, so investments are often poorly chosen and poorly managed. Government investments, if they should exist at all beyond interstate infrastructure, should be made and managed at the local level.
Keynesian economics seems to fit well with socialism. Marx thought in aggregates, too.
Aug '10
Re: Has Keynesianism Ever Worked Anywhere?
Peter Robinson
Kenneth: Peter, referring to us as a "mosh pit" is demeaning.
We are a seething rabble.
Sorry, Kenneth. You know me. Once again, straining to be hip. · Sep 6 at 6:17pm
Well, at least you're young enough to be straining to be hip, rather than straining a hip.
Jul '10
Re: Has Keynesianism Ever Worked Anywhere?
Midget Faded Rattlesnake
Peter Robinson
Kenneth: Peter, referring to us as a "mosh pit" is demeaning.
We are a seething rabble.
Sorry, Kenneth. You know me. Once again, straining to be hip. · Sep 6 at 6:17pm
Well, at least you're young enough to be straining to be hip, rather than straining a hip. · Sep 6 at 6:28pm
He's really quite groovy, actually. And dances a mean Lambada.
Sep '10
Re: Has Keynesianism Ever Worked Anywhere?
The career of John Maynard Keynes and the rise of Keynesian Economics is a classic example of what I call the "Margaret Mead Syndrome." Mead was a scientific hack – a mediocre nonentity who would be forgotten today except that she was useful to other people's agendas. She provided scientific cover for various social & liberal causes and, in return, was hailed as a great scientific genius. One hand washes the other.
In the same way, Keynes provided economic cover for FDR's New Deal and, in return, was hailed as a great economic genius. The triumph of Keynesianism in the 30s was born out of a cynical marriage of convenience between politicians who needed some sort of justification for their radical policies, and economists who were hungry for validation and, not incidentally, cozy government jobs.
For the record, our current President is, himself, another benefactor of the Margaret Mead Syndrome.
May '10
Re: Has Keynesianism Ever Worked Anywhere?
Well, to be fair, there are two sides to this coin. I think this is a fair accusation to make concerning the attempt to discredit traditional economic policies, which were (wrongly) scapegoated by many as the cause of the depression.
That being said, don't discount the level of radical sentiment that pervaded the country, including many with influence who called for a turn to fascism or socialism. Keynesian economics, if nothing else, gave FDR an out that was nominally still capitalist and quieted calls for more radical sentiment. It might have done nothing to help the depression, but we're at least better off being stuck with Keynesianism rather than socialism.
Edited on Sep 7, 2010 at 8:46amMay '10
Re: Has Keynesianism Ever Worked Anywhere?
1) Robert Higgs (talking with Russ Roberts) argues that WWII did not end the Great Depression
2) The "stimulus" (Steyn's American Recession and Redistribution Act) didn't do much for infrastructure because they didn't devote much to infrastructure- too many middle-class men involved; there were other priorities.
3) I doubt that we will ever have data that can be segregated to definitively show that Keynesianism is a workable principle. What we do know is that, in practice, it is impossible to keep it out of the realm where it will always be corrupted by market-distorting politics. That is enough reason to avoid it.
4) There is a solid case for prioritizing needed infrastructure projects during a downturn, as long as they are not make-work. Hoover Dam and the interstate highways were needed, CCC was make-work. In Minnesota I have a strong hunch that the football stadium will get a jump start of some sort; I'm not a big fan except to the extent needed to make Steve Hayes very unhappy.
5) There are always ways in which the nation and the economy benefits by changing regulatory policy- both positive and negative.