Keynesianism: economic arguments or political arguments?

Maybe, just maybe Keynes merely had an opinion regarding economics aka The General Theory. Maybe, just maybe Keynesianism is the opinion turned into a branch of politics. Maybe, just maybe the politician has become dependent upon Keynesianism and Keynesianism dependent upon politician. Maybe, just maybe Keynesianism is a perpetuated phenomena that empowers the politico and has nothing to do with economics.

Consider media reports describing Keynesian arguments. Are the reports more descriptive of economic arguments or are the reports describing a politician or political arguments?

The following may be enlightening:

(A) “Keynes was exceedingly effective in persuading a broad group—economists, policymakers, government officials, and interested citizens—of the two concepts implicit in his letter to Hayek: first, the public interest concept of government; second, the benevolent dictatorship concept that all will be well if only good men are in power. Clearly, Keynes’s agreement with “virtually the whole” of the Road to Serfdom did not extend to the chapter titled “Why the Worst Get on Top.”

Keynes believed that economists (and others) could best contribute to the improvement of society by investigating how to manipulate the levers actually or potentially under control of the political authorities so as to achieve desirable ends, and then persuading benevolent civil servants and elected officials to follow their advice. The role of voters is to elect persons with the right moral values to office and then let them run the country“. (1)

(B) "The fundamental principle of socialism is that its is appropriate to use force to organize society, to take from some and give to others. The government has nothing to give. The government is simply a mechanism which has the power to take from some to give to others. It is a way in which some people can spend other peoples' money for the benefit of a third party - and not so incidentally themselves". (2)

(C)  For policy, the central fact is that Keynesian policy recommendations have no sounder basis, in a scientific sense, than recommendations of non-Keynesian economists or, for that matter, non economists. (3)

Notes:
　

　

　
(1) Milton Friedman, Richmond Federal Reserve Economic Quarterly, volume 83/2 Spring 1997.

http://www.richmondfed.org/publications/research/economic_quarterly/1997/spring/pdf/friedman.pdf

(2) The Invisible Hand in Economics and Politics, Milton Friedman, Institute of Southeast Asian Studies, 1981, p11.

(3) After Keynesian Economics aka After the Phillips Curve: Persistence of High Inflation and High Unemployment, page 57, Lucas and Sargent.

Tinkering Through Spending by Some People

Consider this observation by Milton Friedman regarding Keynes and the advent of Keynesianism:

“Keynes was exceedingly effective in persuading a broad group—economists, policymakers, government officials, and interested citizens—of the two concepts implicit in his letter to Hayek: first, the public interest concept of government; second, the benevolent dictatorship concept that all will be well if only good men are in power. Clearly, Keynes’s agreement with “virtually the whole” of the Road to Serfdom did not extend to the chapter titled “Why the Worst Get on Top.”

Keynes believed that economists (and others) could best contribute to the improvement of society by investigating how to manipulate the levers actually or potentially under control of the political authorities so as to achieve desirable ends, and then persuading benevolent civil servants and elected officials to follow their advice. The role of voters is to elect persons with the right moral values to office and then let them run the country“. (1)

　

Special attention needs paid to this passage: “…improvement of society by investigating how to manipulate the levers actually or potentially under control of the political authorities so as to achieve desirable ends…”. Keynes basically created a free pass for politicos through the mechanism of government to “tinker”. Keynesianism has institutionalized “tinkering”.

Going one more step and combining two Milton Friedman observations, take the above observation and the above highlighted passage and consider the following:

"The fundamental principle of socialism is that its is appropriate to use force to organize society, to take from some and give to others. The government has nothing to give. The government is simply a mechanism which has the power to take from some to give to others. It is a way in which some people can spend other peoples' money for the benefit of a third party - and not so incidentally themselves". (2)

Considering the two observations together, it strikes one that the only item of consequence of The General Theory for the politico is deficit spending or “spending”. Keynes and Keynesianism political-economy appears to boil down to an attempt to legitimize tinkering by “some people” i.e. politicos.

Tinkering through spending by some people is not an empirical proposition. Stated alternatively, tinkering through spending by some people is merely a notional proposition, a vision, or quite frankly no more than an opinion. It would logically follow that if we have a notional proposition, vision, and opinion…. then tinkering through spending by some people would be/will be supported and perpetuated by arguments that are notional propositions, vision oriented, and opinion based.

Step back for a moment, keeping in mind tinkering through spending by some people is supported and perpetuated by arguments that are notional propositions, vision oriented, and opinion based; exactly what kind-type arguments have been put forward in the last eighty years regarding government intervention into the economy? The track record of these notionally based intentions vs. the actual results? Tinkering through spending by some people, the summation there of, has produced exactly what? What grand cumulative positive result can one point to?

Hence we have no positive result. We have the constant and relentless continuation of notional propositions, vision oriented, and opinion based arguments regardless of the non-positive result. Which basically accumulates into the concept of “judge us by our intentions and not our results“. Which would lead one to surmise that tinkering through spending by some people is not a public policy concept but rather a political power concept. That Keynesianism is merely an institutionalized support argument for political power or the power of the state. Which circles one back to this statement by Friedman:

“The government has nothing to give. The government is simply a mechanism which has the power to take from some to give to others. It is a way in which some people can spend other peoples' money for the benefit of a third party - and not so incidentally themselves.”

　

　
Notes:
　

　

　

(1) Milton Friedman, Richmond Federal Reserve Economic Quarterly, volume 83/2 Spring 1997.
http://www.richmondfed.org/publications/research/economic_quarterly/1997/spring/pdf/friedman.pdf

(2) The Invisible Hand in Economics and Politics, Milton Friedman, Institute of Southeast Asian Studies, 1981, p11.

　

　

The Keynesian bucket diagram of “spending”: an economic theory or a political theory?

At the blog Our Dinner Table a recent post is entitled Keynesian Stimulus in One Sentence. The proposed definition is: We’re not sure why you are not spending your money, but we don’t like it, so we are going to spend it for you. (1)

That’s a most excellent definition!

Moreover, the proposed definition might lead one to say John Maynard Keynes economic propositions morphed, through neo-Keynesian and new-Keynesian followers, supporters, and advocates into a political proposition. That Keynesianism is no longer an economic proposition but a political proposition.

How so?

Keynesian deficit spending aka stimulus

Keynesian supporters love to refer to deficit spending by the politico-title "stimulus". That deficit spending by politicos [politicos through the mechanism of government] will somehow, some way [generally the lack of agregate demand argument] "jump start the economy". That government deficit spending will jump start the private sector and hence bring an economy out of recession. -Or- We’re not sure why you are not spending your money, but we don’t like it, so we are going to spend it for you.

Politicos in the candy shop

Many politicos love Keynesianism. Why? If we are going to spend more money it creates the perfect environment for political constituency building activities by politicos. Politicos through the mechanism of government can then satisfy rent seekers (special interests), expand existing entitlement programs or propose new entitlement programs, and to some extent offer up good old pork barrel spending to those voters in the home district. That is, the politico is handed the golden opportunity to exercise political constituency building through the mechanism of government by creating dependency groups, rewarding existing dependency groups, and spending other peoples‘ money on the electorate in the home district.

The lovely diagram of the "bucket"

The jump start stimulus theory always comes with the lovely diagram of the "bucket". The bucket represents demand. The bucket's content is household, business, and government demand for goods and services. A recession is a bucket that is not full to the brim. The bucket is no longer full as the demand components of households and businesses have shrunk and hence its the government's responsibility to increase its expenditures (increase its component of the bucket) in order to bring the bucket back to full.

Seems like common sense. However, the increased government expenditures that attempt to fill the bucket is really draining the bucket simultaneously. Its counterintuitive. As the government increases spending, private capital formation leaks out of the bucket [private sector capital formation being the main driver of private sector employment growth]. Hence you try and try to fill the bucket but it remains below the brim.

Once you stop filling the bucket with government deficit spending, you now must pay for the deficit spending. Hence Keynesians raise taxes. The taxes then create another leak in the bucket. Hence the bucket goes right back to the level that you began with before you started this wasted exercise.

Economics or politics?

Keynesians can never stop spending. This is the point of metamorphosis where an economic proposition becomes a political proposition. You see, each time you attempt to fill the bucket with deficit government spending, the size and scope of government increases. That is, a residual amount of government is added, an additional increment of size and scope of government, an entitlement here a rent seeker there, is added to the existing layers. A political constituency layer is added to the great pyramid scheme of political constituency building through: other people (politico) spending other peoples' money (tax payer) on other people (recipient class). -Or- Maybe its the fourth category of spending and a fifth category of spending: other people, borrowing other peoples' money, and spending borrowed money on other people. (2)


Paying back the deficit spending?

Wait! It gets better. When Keynesians raise taxes to pay for the deficit spending, part of the tax is to pay for the new permanent incremental layer of government aka political constituency enhanced or increased. That is, a permo-tax for the new permo-layer of political constituency.

Then as any good chocolate sundae of spend and tax/tax and spend would have it, a cherry must be added atop. The new tax level merely allows politicos additional revenue to spend. Rather than paying back the deficit spending, politicos through the mechanism of government merely spend more on government size and scope aka political constituency building.


Keynesians should wear the bucket over their political constituency building heads.


(1) http://ourdinnertable.wordpress.com/2011/03/14/keynesian-stimulus-in-one-sentence/

(2)http://www.youtube.com/watch?v=5RDMdc5r5z8