Home > Macro/Monetary Theory > My God! Lord, my God! Please Make the Devil Keep his Word!

My God! Lord, my God! Please Make the Devil Keep his Word!

So I’m a libertarian–a real libertarian, not a leftlibertarian (it’s like a really bad horror movie, you know it’s sick and wrong but for some reason you can’t help watching it again and again).  I think the government should be a lot smaller and generally leave us alone.  Also, I’m an economist (more or less) and I especially think it should stay out of markets and economics.  Lots of people agree with me.  Lots of people don’t.  The ones who do seem to be growing in number which is good.  But there is something problematic going on intellectually in the movement and it could very well be our undoing if we don’t sort it out quickly.

Over the past century there has developed a major divide in macroeconomic thought.  The two sides can be represented by the Keynesians and the Austrians with several other schools falling somewhere in between (monetarists, RBC, etc).  To put things simply, the Keynesians are the big-government types and the Austrians represent our side.  For the most part the Keynesians have been winning the battle.  Naturally, the two sides don’t care much for each other and if you go on the Austrian blogs you will find a general dismissal of Keynesian ideas as confused and intellectually bankrupt.  I have no interest in defending Keynesianism, I have been an ardent critic of it.  But these people aren’t as confused as Austrians seem to think.  In fact the root problem with Keynesianism is that it is morally bankrupt.  It’s true that there are important theoretical flaws in their models but these are not so simple as the broken window fallacy. The flaws are there to cover up the moral foundation which would terrify most people if it were revealed.  But the general conclusions are largely correct.  This should concern us much more than if they were just completely misguided but if we are going to do anything meaningful about it we have to acknowledge how and why their theories “work.”

I will try in coming weeks/months/years to make the case that orthodox Keynesian economics is largely correct and that this is why we should be concerned.  But this is too large a task to undertake in this post.  So my appeal to you the reader is not to believe me but just to admit that it’s possible.   So let me try to explain why there is so much distance between the two sides.

Austrians are like scientists and Keynesians are like engineers.  Just as a scientist tries to describe the laws of nature, Austrian (and most of classical) economics is concerned with describing how a natural, free market economy functions.  Just as an engineer tries to construct devices to overcome the laws of nature, Keynesians concern themselves with designing a system to overcome the laws of economics.  Of course neither of them can change the natural law, but they can often overcome what seem to be the obvious implications of those laws.  The law of gravity says there is a force pulling things down (more or less).  The obvious implication of this is “what goes up must come down.”  Nonetheless, an engineer can design a craft that flies.

Hundreds of years ago, people claimed that government spending creates jobs and grows the economy.  Austrians and classical economists correctly identified that government spending misallocates resources and doesn’t help the economy.  But the other side didn’t just say “oh I guess you’re right, we give up.”  And what’s more, they didn’t just keep making the same flawed argument (though this seems to be the view of most people on my side).  They actually constructed an economy in which the broken window fallacy is seemingly not a fallacy.  Of course, there is a fundamental law of nature underlying the concept and they can’t change that.  Yes, it’s true that destruction (in this sense) is inefficient and governments misallocate resources.  Yes we would be better off if the government didn’t do this stuff and we had a free market.  But we don’t have a free market, we have a contraption constructed by progressives to make these fallacies hold.

So is it so hard to believe that Krugman might be right, that more government spending–even wasteful spending–might actually improve the economy?  This doesn’t invalidate any tenants of Austrian or classical economics any more than observing an airplane flying negates the law of gravity.  But just like an airplane, an artificial device constructed to combat the laws of nature can do so only temporarily.  The economy is an airplane and we are citing the law of gravity to deny that we are flying.  But this doesn’t do anything to save us.  The plane is going somewhere.  That is what they don’t tell us.  They tell us “just don’t worry it’s flying, as long as it keeps flying we’ll be fine, we know what we’re doing.”  The insight that we need to glean from our knowledge of the laws of nature is not that planes don’t fly but that eventually they come down somehow.  If we notice this we can start asking when, where, and how it will come down (the answer is not good).  But in order to answer these questions we have to understand how planes fly in the first place.

So please, just ask yourself if you are willing to go down this road.  If you are, please stay tuned to my blog.  Like I said, I don’t expect you to be convinced by this that Krugman is right.  I’m not arguing that we should do what he is prescribing and I’m certainly not trying to convince you to become a Keynesian.  But if we don’t understand why he wants to do it we can’t work toward a real viable alternative.  Intellectuals on our side of the debate are well aware that what we have is not really free market capitalism.  They are well aware that the Federal Reserve manipulates the economy and creates bubbles.  In other words they are aware that they have constructed a system capable of making the economy function in ways which are different from a natural free market economy.  But then when a Keynesian comes along and says “look, the machine works like this,” all I hear from my side is “the machine doesn’t exist!”  But never forget my dear brothers, “when you hear the progress of enlightenment vaunted, that the devil’s best trick is to persuade you that he doesn’t exist!”

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  1. August 18, 2011 at 11:10 pm

    Excellent post! Keep me updated. I’ll follow along. I loved the analogy of Keynesian’s as engineers (but they are definitely bad ones). The plane analogy was also on the spot. I couldn’t agree with you more. It’s weird to not disagree with somebody. Can’t wait to take Macro 301 and constantly argue with my Keynesian teacher.

  2. Free Radical
    August 19, 2011 at 6:52 pm

    Thank you. It’s kind of funny, after writing that yesterday I saw Captain America and the end (I won’t ruin it) is very similar to that analogy.

  3. September 24, 2011 at 3:00 am

    Is Noam Chomsky a left-libertarian? I was reading that he praises libertarian socialism. That’s actually a thing?

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