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Will Lord Keynes Save Lord Baltimore’s City?
Baltimore was torn to bits last night. But according to the economic philosophy introduced by Lord John Maynard Keynes and espoused by the progressive elite across the world, this is great news for the city! Broken windows, burned cars, shattered lives. It’s as if the people of Baltimore have hit the Keynesian Powerball! The people will be swimming in prosperity any day now.
Nuts, right?
Of course it is. However, it’s exactly what Dr. Paul Krugman or any other Keynesian economists would order for the city. Baltimore, like many of the other cities that have recently suffered mass violence, has a poverty problem masquerading in the media as a race problem. Certainly there are huge issues to work on between the black community and local law enforcement, but the scene of individuals out rioting is an indication of a dearth of economic opportunity.
Let me make a clear distinction here: there is a huge difference between rioting and protesting. I am not talking about protestors. There is very little opportunity cost behind standing up peacefully for something you strongly believe in. Standing up for your beliefs is a good thing and people justifiably derive a high level of utility from spending their time doing so. There is, however, a massive risk behind picking up a rock and hurling it at a store window or a cop’s head. That risk is minimized when you have nothing to lose. Without jobs or opportunity available in these communities, that’s exactly how many of these rioters feel. They are venting frustration at both police brutality and the economic state of their communities, even if they are unaware of the latter.
Baltimore has a poverty problem. While other issues may exacerbate it, the overall issue is that plain and simple. Yet the teachings of Lord Keynes would indicate that Baltimore is now on the verge of a comeback that will end that poverty problem. Keynesianism rests its weight on the concept of “stimulating aggregate demand.” Lord Keynes himself once said that a depressed economy could be stimulated by the government burying bottles filled with money in coal mines filled with garbage. Seriously. This helps explain why the “War on Poverty” has cost the US taxpayer $22 trillion and has thus far not only failed to eliminate poverty, but has arguably made the problems much worse.
Keynesian “stimulus” has been criticized by much better and more rational economists who refer to this idea of stimulating aggregate demand as the “Broken Window” fallacy. Keynesianism tells us that a rock cast through a shop window creates a job for a glass repairman and burned buildings create jobs for construction workers, etc. The reality is that the violence committed against private property deters local investment and takes opportunity away from those people to whom the money spent to fix the glass and repair the buildings would have otherwise gone. Even if a new job is created to fix a broken window, the owner of the window has now paid for it twice and the community as a whole is poorer to the tune of one window.
While they will never admit it, Keynesian economists believe deep down that Baltimore will now flourish as new jobs are created to clean up the mess caused by all these riots. They have to, or they necessarily challenge their own economic philosophy. Check back in a few months in the neighborhoods rocked by this week’s violence. I dare any true believer in the teachings of Keynes to enter those neighborhoods and tell the people there that they are now better off because all the local stores and businesses were destroyed.
Of course these people won’t be better off. The same liberal politicians that believe in stimulating aggregate demand through destruction and rampant government entitlement spending will continue to deceive the people of these communities into blaming something other than the failure of Keynesian economic policy for their misery. In most cases, that scapegoat becomes race.
Published in Economics, General
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Great post. I wish our candidates would read the Broken Window Fallacy.
Or maybe they don’t really believe this when it comes to specific examples, but they believe it in abstract scenarios. I doubt even delusional liberals are thinking about economic opportunities this vandalism creates, though they are certainly thinking about political opportunities.
These riots are not a consequence of poverty. There are many subcultures of poor people in and around cities that do not vandalize and rampage in this way. These riots are a consequence of a corrupted culture and race-baiting. They are a consequence of despicable manipulations by Democrats over a course of decades.
But I agree with the general premise of your post: that wanton destruction does not aid a local economy.
To be fair to Keynes, his policies in no way called for rioting as an economic stimulant. One unfamiliar with his work might get a different impression from this post.
The glazier fallacy you are referring to was written 30 years before Keynes was born.
I attempted on Facebook today to point out that near single party control in Baltimore and MD for more than 50 years NOT preventing what is happening there now was an indictment of big government and endless spending as the solution to all problems. My arguments were in vain and I ended commenting disheartened.
Well certainly. Of course Bastiat is much older than Keynes. Rothbard discusses this and how “Bastiat’s fable of the broken window also brilliantly refuted Keynesianism nearly a century before its birth,” in An Austrian Perspective on the History of Economic Thought.
I also never said they call for rioting, however Keynesians attempt in the case of war, riots, or other horrible events to remind us of the “blessings of destruction.”
The war on poverty was successful – there is no poverty in America. These people are not impoverished – they are warmly dressed and well fed.
Thanks!
I’m not intimately familiar with Rothbard – is his position correctly capsuled by asserting Keynes has been “refuted?”
Keynes was right about one thing. In the long run, he is dead.
I dunno. I like a good 2-minute hate as much as the next guy, but this seems seems like the flip-side of getting called a Social Darwinist if you think there might be something to supply-side economics. Probably Keynes’ (actual) arguments made a certain amount of sense in 1932 with a broken banking system and fixed exchange rates. They might have been wrong, right, or right for the wrong reasons, and economics being what it is, we’ll never know for sure, but they weren’t insane or obviously stupid. What others have done in his name in other times and for other conditions really isn’t his fault*. Note, burying cash in mines is the same concept as Milton Friedman’s (later Bernanke’s) cash-dispensing helicopter. It’s not advocating destruction for its economically stimulative effects.
*Keynes called himself the only anti-keynesian at Bretton Woods. Also ironic, given his reborn popularity during the Great Recession, that he said something about solving a problem that hasn’t existed for 50 years with something someone said 100 years ago and that you’ve misunderstood.
Your characterization of Keynesian stimulus is right on; but as others have noted, the broken window stuff ain’t really his.
Keynes has become a bit of a boogeyman: he gets blamed for things he shouldn’t and doesn’t get blamed for things he should. For example, does anyone call the Bush tax cuts “Keynesian?” They were targeted and temporary countercyclical measures, per the Keynes prescription.
The left won’t admit that Keynes promoted tax cuts, and the right won’t admit we get seduced by Keynesian logic.
Very well put.
I note too that Hayek himself acknowledged Keynesian spending could stimulate an economy – the questions were timing, necessity and degree, all of which could lead to abuses and then backfire.
Keynes’ math is not wrong. It simply gets misapplied.
Is it “Ke-NAY-sian” or “KEEN-sian”?
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