28 thoughts on “The Keynes-Hayek Rap Video”

  1. I read the piece and would like to add a simple critique of Keynsianism, which the author omits. Keynesians put much stock in their magic formula: C + I + G = Y The big problem with this is that most do not recognize it as a static equality. It describes national income in its constituent parts at a single moment.

    Since it is an equality you can not increase one part without decreasing another part. Thus, when Keynes says to “boost aggregate demand” you cannot do it with government spending since adding to G must necessarily take it away from C or I. The only way to increase Y, in the long run, is through improvements in productivity. Now you can argue all day about where improvements in productivity come from, but most would agree it does not come from government spending.

  2. The poll at the bottom is interesting – Hayek is winning by a landslide. Seems counter-intutitive.

  3. Hayek is popular online, mostly because of the contingent, if increasingly marginal, advantage of libertarianism in the social development of the net. Also, the article is strongly pro-Austrian. Kossacks aren’t exactly known for their ideological rigour, anyways. It’s a hyperpartisan snakepit, not a deep-think joint.

    One of the main themes of Goldberg’s Liberal Fascism was the deliberate forgetfulness of the modern left. The rhetorical advantage it provides in terms of “fascist, racist!” invective brings with it a certain intellectual squishiness, a malleability which occasionally offers the chance to lead the progressive crowd off the reservation if you properly hide the road signs ahead of time.

  4. Jardinero1

    [[[Now you can argue all day about where improvements in productivity come from, but most would agree it does not come from government spending.]]]

    Yep, the ARPAnet was a huge waste of money…. Without it we would be so more productive writing letters and memo to each other and arguing in bars instead of on blogs….

    Seems to me the Interstate Highway was a waste as well, much better to just take the train…

  5. Thomas,

    Yes the government funded the arpanet. If you are suggesting the the internet and the arpanet are the same thing then you are mistaken. The only similarity between the two is that both use packet switching. The modern Internet bares no resemblance to the Arpanet. The private sector built the Internet. It is highly likely the internet would have happened even without arpanet. I would characterize the Interstate Highway system as a massive boondoggle. In the end, what it amounted to was a massive subsidy to the trucking industry. Trucks are a very inefficient form of bulk transport, except for the last mile. I would have left interstate transport of goods and people to trains, planes and toll-roads.

  6. The interstate highway system was basically built to enable the US Army to get from Fort A to Fort B in a timely manner. Eisenhower was much impressed by the Autobahn and it’s effects on logistics.

    That the public gets to use it is just a bonus….

  7. Look Thomas Matula, do you really want to get into a pissing match about government spending efficiency? Because for every Internet and Interstate Highway System you offer, I can hand you a Texas Superconducting Super-collider and a Constellation Program, and I’ll throw in a $10,000 toilet seat and a $1 billion failed computer upgrade at the IRS to boot!

    Come on Thomas, I can do this all day!

  8. Jard: The IHS’ main original purpose (according to Ike when he was pushing for ’em) was military, and the latter wouldn’t have been an effective way to move tanks and troops around in case the Russkies invaded.

    (Or, later, mobile missile carriers, but by then the economic utility of massive transit capacity was pretty well established.

    Not that I’d have a problem with cutting all the IHS Federal funding and taking them to toll roads, privately owned, or state-run, in principle.)

  9. Both Thomas and Jardinero1 are right concerning the interstate highway system. It is both massively useful and a huge boondoggle. Like many things the government does (dams, bridges, etc.), it wasn’t likely to happen by itself, it was extremely expensive, it benefits the common good to the point where nobody wants to pay for it individually…..and it’s been hugely corrupted by earmarks, union labor involvement, micromanagement, and the rest of the political process.

    Had it been done by a private enterprise, it would likely have cost half as much and been designed to run twice as efficiently…..but it would never have been built.

    I’m personally glad that it was built — my parents came from West Virginia and Colorado and met in Southern California because of the unprecedented mobility the interstate highway system affords — but it’s definitely not an example the power of the government to get things done efficiently.

  10. It’s interesting that the only examples of productive government spending shown by the pro-government advocates are military projects. In fact, the military is exceptional, different in many ways from government. And in case of the arpanet, less so in the highway system, defense research contracts were given to best providers in a highly competitive process without much subjection to political concerns (that is, corruption) because of the need for real-world performance of the output. This is less true for the highway system.

    Civilian projects, including urban-scale transportation and other local “earmarks”, railroad subsidies, and the entire panoply of social programs, have been uniformly disasters.

  11. Industrial policy has to be judged by the results. Pure libertarianism argument breaks down at the margins because there are projects that really do need communitarian action.

    Motivations have to be judged too, since so much money is spent on projects that are really log rolling for parochial or private interests. Hence, an industrial policy really does need a high threshold and broad political support.

    For example, government support of nuclear power R&D has had a huge payback while our efforts on alternative energies has been a rat hole for special interests. Why? The physics of energy.

    Too bad we have so few technically trained and experienced lawmakers in Congress and too many lawyers.

  12. The defense angle was never more than a way to get the legislation past the constitution. There was never a serious military use . The old arterial highway system would have moved troops just as well.

  13. Jardinero1, you fail to appreciate the power of macroeconomic aggregation. For example, economically C + I + G = Y in exactly the same way that two walruses, three past participles, and a supernova are equal to six walruses, past participles, and supernovas.

  14. ”’
    Yep, the ARPAnet was a huge waste of money…. Without it we would be so more productive writing letters and memo to each other and arguing in bars instead of on blogs….
    ”’
    You presume that something like the internet could not have been created *at all* without government intervention. While DARPA did provide funding for early research, private companies *did* do a lot of their own research, networks existed prior to Arpanet (not globe spanning digital networks, but local networks).

    Even prior to the Eternal September major corporations and colleges (meaning state and student money in addition to federal) were *paying* for internet access, and paying companies like BBN planet to give them access. In essence it was the sort of multiplier that Keynes would have approved of. Especially since almost all of of that spending was short term and stopped when it was no longer useful. Unlike MOST government spending. Back then no one would have really argued that they were entitled to DARPA grants. Today? Who knows.

  15. Choey:

    No, it wouldn’t have.

    I’ve lived near bits of the original Hwy 40, and ridden on bits of Rte 66. Modern (for 60s and 70s values of modern) heavy lift aircraft would have TRASHED it. I’ve seen jets (Harriers) and Helicopters practicing using roads as improvised runways. Seriously, the old “arterial” system would have been blown to bits. By building modern interstate system we basically have dozens of runways running the length and width of the country. Or, if you prefer 10s of thousands of runways all over the county.

    The old system also had problems (from the military/troop movement perspective) that you *had* to slow down going in and out of towns, as most smaller towns were not bypassed–why would they be, since that was mostly the point of the roads. You lose time, spend fuel and increase accident risk decelerating, transiting the town and then speeding up on the other side.

    No, the potential military benefits of the interstate system were very real, if one assumed that Canada or Mexico would invade us (well, that Mexico would invade us by force) or allow their soil to be a staging area for an invasion. Because the idea of any other country actually doing a beach landing of troops, even back in the 60s, was rather insane.

  16. William O. B’Livion,

    [[[You presume that something like the internet could not have been created *at all* without government intervention. While DARPA did provide funding for early research, private companies *did* do a lot of their own research, networks existed prior to Arpanet (not globe spanning digital networks, but local networks).]]]

    I am sure private industry would have created it eventually, just as New Space firms would have eventually developed a human space flight capability without the government subsidy of NASA for commercial crew…

    But government money accelerated its development and bought it to the point where it was commercially viable much quicker.

    Tom

  17. I hope that one day the private sector will be as good as the public sector as an employer. The private sector features rampant age discrimination and companies where employees make low wages and the executives travel by private jet. I will go get a job in the private sector when it has (1) a pension- not a 401-K- a pension where the employer is on the hook for a fixed percentage based on age and years of service, (2) Layoffs strictly by seniority, so every day that passes makes you more secure, (3) Time off- I have 3 personal days, 13 holidays, 15 sick days, and 20 vaction days.

  18. Matt, not to put too fine a point on it, that’s why the public sector is broke and getting broker. Read up a bit on unfunded public pension liabilities and you’ll see the public retirement system is staring down the barrel of a loaded cannon.

    As for executives on private jets, have you seen Pelosi’s? At least the corporate jets are coming from their money, not yours.

  19. Mmmmm. The ARPANET (Advanced Research Projects Agency Network, created by the Defense Advanced Research Projects Agency (DARPA) seems to have something to do with defense, and the Interstate Highway System is a kind of double-dose Defense and the Interstate Commerce thingy. I’m pretty sure those two items fall under the purview of the Federal Government.

    What was that? Well yes, it could be a solid portion of the government’s Raison d’être- pardon my French.

  20. Matt Says:

    March 2nd, 2010 at 5:38 pm
    I hope that one day the private sector will be as good as the public sector as an employer. The private sector features rampant age discrimination and companies where employees make low wages and the executives travel by private jet. I will go get a job in the private sector when it has (1) a pension- not a 401-K- a pension where the employer is on the hook for a fixed percentage based on age and years of service, (2) Layoffs strictly by seniority, so every day that passes makes you more secure, (3) Time off- I have 3 personal days, 13 holidays, 15 sick days, and 20 vaction days.

    It is real easy to be a “good employeer” when you do not have to be consurned with a) turning a profit or b) putting out a quality product. Real businesses are based on an ever shifting set of priorities that includes balancing benefits, quality, costs, employee retention and a large number of other factors that are not relevent to a government. The privilaged private sector you speak of is a rarity. How many jet trips has Queen Nancy taken this year so far? A lot more than the president of the company I work for, I can tell you.

    You seem to forget (probably because you have worked in the government for so long) is that it is not YOUR job! It is a temporary agreement between the employer and employee for only as long as it makes sense to both parties.

  21. Dear Matt,

    You appear to be a leech.

    I will seriously consider voting for any politician who credibly promises to cut non-military, government payrolls.

    Here’s looking forward to the time when you ask me if I’d like fries with that.

  22. Regarding military use of the Interstates: Herman Kahn’s protege Burton Bruce-Biggs noted that the Beltways were placed outside the probable radii of the H-bomb craters. If the US were nuked, military traffic could still roll.

  23. Matt said:
    “(1) a pension- not a 401-K”

    REALITY-based pension systems (i.e., where people can’t rob others to pay their costs) have to be realistic about costs and benefits. If you can’t rob someone else for your pension, you can’t run a system where a worker deposits $120k in return for $3M (as in New Jersey). What you really want is for “someone else” to pay your way, and that works only until the money runs out (maybe you’ve heard of GM and Chrysler bankruptcy, or the impending implosion of California’s state budget).

    “(2) Layoffs strictly by seniority”
    Just like in unionized schools, where incompetent teachers have as much job security (and pay) as competent (or even excellent) ones. Marvelous!

    “(3) Time off- I have 3 personal days”
    That’s great, when someone else has to pay your way.

    Your comments all boil down to “someone else should pay for me – and I don’t care who suffers, as long as I get mine” (the British phrase is “I’m All Right, Jack”), so you’re a perfect recruit for a government employee union.

  24. Thomas, that’s an interesting analogy in your last post, which I suspect rather undercuts your point. It’s been argued — by Rand I believe — that at a certain point government spending on a frontier goal simply replaces private investment. Who would risk his own retirement savings investing in SpaceX if the gummint with endless taxpayer reserves and zero cost to failure is in the game? Why not just wait and see what emerges, let the government take the risk?

    From that point of view, one of the effects of Darpa funding packet switching tech was to suppress any possibility of private investment in same. But who cares, eh? We got the Internet!

    Well, again as I believe Rand has pointed out, government investment tends to be monolithic and inflexible. We get only one launch vehicle technology at a time: Apollo, Shuttle, Orion. No choice — no competition of alternate visions, from which the best candidate may emerge.

    So if you are 100% sure that TCP/IP is the best possible world, the only and best way to have an Internet, well, then it doesn’t matter that government funded and pushed the whole shebang.

    But…what if there were people who had better ideas in the 60s? People whose ideas never got the capital investment necessary to try them out — because Big Government funded one particular approach, and that sucked all the oxygen out of the field? What if the Internet we have is kind of like the rockets we had in 1972, and 30 years from now we’ll be sorry that we’re locked into a dumbass idea that people unknown at the time — I mean, unknown to us now — pointed out was silly? Keep in mind Apollo was very impressive to the generic 1972 observer. You had to be an expert to realize it wasn’t necessarily the best way to go, long term.

    One of the most difficult things to assess is what might have been, but when you consider what the world would be like without massive government spending, you have to do it. It’s not fair to subtract the benefits of government and then fail to ask yourself what else people might have done, had they had that money to spend as they saw fit, instead of how 500 clowns in Washington thought best.

  25. I live in Europe, and the problem here is the same for both private and public sector – people believe they are entitled to a job, and performing it well has no bearing on the matter. Shop clerks are rude and inattentive, buildings get put up over years, not months, and everyone is on break all the time! No wonder no one wants to higher a new “worker”.

  26. There was never a serious military use . The old arterial highway system would have moved troops just as well.

    Eisenhower got the idea for it not just from the autobahns, but also from an effort, which he was part of, to get Army convoys from the east coast to the west coast in 1919. It wasn’t easy, and the main reason was that the roads and bridges were awful to non-existent. Check out “Transcontinental Motor Convoy” on Wikipedia for more details.

  27. ”’
    So if you are 100% sure that TCP/IP is the best possible world, the only and best way to have an Internet, well, then it doesn’t matter that government funded and pushed the whole shebang.
    ”’

    TCP/IP ISN’T the best possible (even for the time) long haul netwrecking protocol, and there were MANY better LAN protocols depending on what you needed to do–which was why TCP/IP won.

    To have an “internetwork” you need to have a protocol that everyone can speak, that everyone can more or less agree on and that can be implemented cheaply–both in terms of royalties and code. All of the “better” protocols were proprietary (Appletalk for instance is routeable, and you could build a world wide network on it, but it’s owned by Apple and good luck getting an open source stack), and most of them were more complicated.

    The internet *was* being invented separately from DARPA, but the tech from DARPA won because it was there, and it was cheaper.

    The space race is different. With networking there is an immediate ROI. Once you demonstrate 2 computers talking together anyone with a f’ing clue gets the potential, or at least gets that there is a potential, even if they don’t realize the size of it.

    Space ain’t like that.

    You can’t launch from a garage. You can’t send a couple engineers into a building across the street, raise a Jolly Rodger and put a satellite in orbit.

  28. Carl,

    [[[was to suppress any possibility of private investment in same. ]]]

    Private industry was so uninterested in the idea of an Internet in 1969, when the government funded its creation, that neither AT&T (and the idea of packet switching came from a 1952 paper from Bell Labs that was all but forgotten by them) or any of the other telecommunication companies even responded to their RFP. So APRA (now DAPRA) pushed some researchers into forming the own company, BBN, to deliver the packet switching technology so the Internet could be switched on Sept. 1, 1969.

    The TCP/IP protocol you refer to wasn’t adapted by the Internet until over 13 years later, on the great switch over, Jan 1. 1983…. It had been in development some 5 years before it was adopted. And the motive was to create an OPEN Internet rather then the closed ones that private industry favored at the time.

    So private industry had 14 years to invest in a better technology IF they were truly interested in creating the Internet. But private industry didn’t since the private computer networks of the day, mostly financial ones for banks, had NO interest in a common standard for marketing reasons (i.e. locking clients into YOUR network by creating a huge technical cost for switching over to your competitors….)

    Yes, they may have had better technical standards, but their short term market advantage mentality, as illustrated by Apples decision not to license their operating system for computers, doomed those standards to extinction or at best niche applications. This is a classic example where short term marketing thinking hinders long term economic efficiency and where government, by selecting a standard, creates increased efficiency.

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