Sunday, December 30, 2012

Kelly on Keynes specifically ....

This is a copy of a comment I made on the PG opinion pages. Today's Jack Kelly column is "John Maynard Keynes, the conservative (The economist was right about much, but his prescriptions have been misapplied)"

Well, there is a fair bit here that I would agree with. One thing I will say off the bat is that I would/am extremely reluctant to put words in Keynes mouth, but I do tend to go by what those who study Keynes say. Also, by now anyone paying attention knows how conservatives hate Paul Krugman, who Kelly (almost) subtly ridicules here.

The funny thing is that I swear when Kelly writes that Keynes said "The market system is "the best safeguard of the variety of life," preserving "the most secure and successful choices of former generations," " that Krugman has quoted (or at least paraphrased) Keynesian on exactly the same subject, to the same effect. Kelly writes that economists feel Keynes repudiated classical economic theory and that is true in the sense of changing policy prescriptions in economic downturns. But Keynes was neither Marx nor Lenin, and, as I understand it, Keynes firmly believed the basic economic tenet that the market is the most efficient method of allocating scarce resources, all things being equal. Now things are frequently not equal, so to speak, but then that is the entire study of economics.

Kelly also gives us this paragraph "The great flaw in Keynes' thinking was his assumption government could act wisely and impartially to stimulate the economy. Spending is popular, tax increases unpopular, in good times as well as bad. So politicians run deficits year after year. Debt mounts. Inflation eats away the savings and investments of the industrious and prudent." Well, there are several things wrong with this. If Keynes says that deficit spending is good only when you are in a economic downturn, but should be avoided when the economy is growing, then why blame Keynes for the deficits of Ronald Reagan and George W Bush? And by the way, why isn't Jack Kelly praising Barack Obama for running a deficit during the current deficit (which started on George W Bush's watch)?

But I have read on these comment threads time and time again liberals saying that balancing the budget and even running surpluses is a fine idea when the economy is growing. And liberals have referenced Bill Clinton as an example of a Democrat who not only said he supported government surpluses, but did his part to actually achieve them.

(A brief aside, something I did not put on the PG - one might ask about the cost of government programs to aid the poor and provide assistance. Strikes me they can be put into two groups, those like education and public transportation that are really sort of investments, and those like health care and food assistance that are humanitarian. Neither group is really that big an item compared to the big three of defense, Social Security and Medicare, and can likely be funded out of general revenue. And since Medicare and Social Security have their own dedicated taxes, they should be discussed separately as well. In any event, I believe spending that is an investment should be the last item cut. But efficiency standards should always be applied.)

I am not nearly as familiar with the theories of Hayek, but to the extent they involve going on the gold standard, I can not possibly agree. But to the extent they involve promoting market like efficiency in government, I believe Keynes, Krugman, certainly myself and apparently Kelly could all find ourselves in agreement. And to the extent that makes Keynes a friend to conservatives, I can believe and agree with that. But Republicans/conservatives/Tea Party types refuse to believe that liberals believe in economic efficiency as much if not more than conservatives (and this comment thread is likely to fill up with personal attacks and lies).

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