The One Reason Keynesians Keep Getting It Wrong


Expecting an economist to think is like expecting a baseball player to be athletic.


Last Friday in The Wall Street Journal, Allan H. Meltzer, an economist at the Hoover Institute, wrote an article called Four Reasons Keynesians Keep Getting It Wrong. In it, he lists four reasons why… well, you know. Here are the four reasons:

  1. Spending raises likelihood of future tax increases, which makes investors less willing to invest.
  2. Redistribution of wealth doesn’t raise overall productivity.
  3. Redistribution means new regulations, which create more economic costs that Keynesians don’t consider.
  4. The cost of creating a new job via government decree is always more expensive than the value of the job.

Meltzer is as correct as he is boring. Keynesians economists do indeed miss these four points. But in order to take out Keynesians, we need to understand why they miss these four points. Meltzer gives no answer. He could at least say that Keynesians miss these four points because they only think in the short-term, though this would only be a partial answer. Plus, the more important question here is: Why have Keynesians kept missing these points for nearly a century even though they have more Harvard diplomas than The Simpsons writing staff? Again, Meltzer gives no answer, but it’s not his fault. He’s an economist, so expecting him to be a thinker would be like expecting a baseball player to be an athlete.

To answer these two questions, we need to find out some information about the founder of Keynesian economics, John Maynard Keynes.

Keynes studied math at Cambridge, as his father did before him. Keynes’s passions, however, were in philosophy, particularly the philosophy of GE Moore, particularly the moral philosophy of GE Moore. The plot thickens (*da da dum*).

Moore’s moral philosophy states that the Good is an indefinable concept. You cannot explain the Good no more than you can explain the color blue. All you can do is ostend (philosophical word for point) an instance of a Good action or thought. But if we cannot define what is Good, how do we know what to ostend?

To answer this question, Moore turns to the concept that everyone turns to when they don’t know what they’re talking about: intuition. The Good, Moore claims, can only be felt on the inside, “in the ideal of your heart.” If you’re thinking that Moore’s philosophy is the foundation of chick logic, then you’re one of us.

What intuitions, therefore, would Keynes have about what’s Good? Well, he was the president of the Cambridge University Liberal Club, a cornerstone ideal of which was the importance of reducing income inequality. So at the risk of over-using a journalism technique, let me ask three more questions:

  1. What if you spent your formative years as the president of a club that imbued upon your subconscious, the “ideal of your heart,” the thought that income equality was the Good?
  2. What if you thought a good action was Good so long as it fulfilled the demands of your intuition, and so not necessarily the demands of reality?
  3. And what if you were a glorified number cruncher?

Answer: You would develop an economic theory that, instead of looking for answers or the best solution to a problem, would only validate the answers already in your mind. Your chick logic meter should be pinging like crazy right now.

This is why the Keynesian model has those four omissions as stated by Meltzer, and probably many more—it doesn’t care if it has omissions. As long as Keynesian theory is doing what’s Good, it doesn’t care if it’s doing what works.

The other problem with only relying on your intuition to tell you what’s good is that having an intuition can feel really good. Instead of letting facts of reality convince you what’s right, you let your feeling convince you what’s right. This is a huge deal when we consider that feelings are the result of chemicals in the brain, chemicals in the brain that work no differently than drugs and can be just as addictive. So what if you were addicted to a feeling that was just as addictive as crack, and it convinced you of being right? A crack head would have no problem sabotaging the US economy to score a fix, so Keynesians have no problem sabotaging the US economy to score another pat on the back from a peer.

The takeaway here is to never argue with a Keynesian about economics on a purely economic level. It’s like arguing with a crack head who has figured out how to crunch numbers to justify his addiction. Not to mention, the discussion will get boring faster than you can say “our wives are fantasizing about men who aren’t economists.”

Also, be wary of man’s awesome power to convince himself he’s right when his world is crumbling around him. You may not be a Keynesian about economics, but you’re probably a Keynesian about some other idea that just isn’t working for you. It’s okay, we all do it. As men, we love principles, but sometimes principles can be stupid.

From this, we can induce the definition of the Good: any thought, feeling, or action that isn’t stupid.

CultureMark Derianeconomics