Apparently, President Obama and the Congressional Democrats have thrown Keynes under the bus, too, even though they don’t realize it:
…it is true that government direction of capital is something Keynes advocated. But the current direction of capital by government is being conducted in a manner that flies in the face of Keynes’s underlying justifications for such state involvement.
For example, the stimulation of investment has thus far been ad hoc. The Treasury and Federal Reserve have infused capital into some firms but not others. In the case of financial firms, the rationales have been to promote liquidity or prevent insolvency or both. The government has moved on to direct capital into the troubled automobile industry. The Federal Reserve and the Treasury are buying mortgage-backed securities, thereby making more credit available to the housing industry. The construction trades are expecting a huge infusion of capital under the rubric of “infrastructure” spending. And now an enormous list of other industries has been approved for temporary stimulation by the Obama administration.
It is difficult to imagine that Keynes would be enthusiastic about these temporary and discretionary policies given his diagnosis of the fundamental problem.
The historical record is helpful here. Keynes opposed immediate, short-term stimulus in 1937 when the British unemployment rate was 11 percent—much higher than we are experiencing today. Furthermore, he opposed temporary reductions in the short-term rates of interest because he believed that variability of interest rates sent the wrong long-term message. As he argued in “How to Avoid a Slump,” an article in the Times of London newspaper, “A low enough long-term rate of interest cannot be achieved if we allow it to be believed that better terms will be obtainable from time to time by those who keep their resources liquid.”
Of course, most of these people are far too economically illiterate to even understand Keynes. Instead, they simply adulate him as a god and use him as an excuse to do what they want to do anyway, regardless of whether or not it’s truly Keynesian.
[Update early evening]
More historical ignorance: Barack Obama versus Henry David Thoreau. Now, Thoreau was actually sort of a loon, and his “wisdom” is highly overrated, as P. J. O’Rourke has amusingly pointed out in the past, but the notion that the small-government philosopher would have approved of the “stimulus” plan is ludicrous.
Donald Luskin eviscerating Paul Krugman is just a microcosm of the overall debate. Krugman has channeled Keynes more than a Nobel Laureate should and has said we aren’t spending enough. In fact, it is a war for the future of our country and while Luskin wins battles the sane people are losing the war.
The thing I remember about Thoreau was the description of the battle of the ants from Walden. Here, he acts as an impartial observer watching two nests of ants (one red and one black) fighting, comparing the seemingly senseless slaughter to human wars. It took me a long while to put two and two together. But Thoreau wasn’t an impartial observer. He was the cause of the conflict since the ants were fighting over Thoreau’s scrap heap of food. They wouldn’t have been so numerous or aggressive in the absence of plentiful food.
One can’t really blame Thoreau for not understanding what was really going on. He only lived at Walden a couple of years, so he wouldn’t see “Battle of the Ants II” and connect these struggles with his copious supply of food. And it’d be alien to his mind to consider the modern concept of disposing of food in a way that wild animals can’t get to it.
Well, I find it interesting that Thoreau could continue to believe that war was senseless even when he observed it happening between ant species.
That is, he was sufficiently unimaginative not to follow this obvious train of thought:
Gee, ants are fighting wars. Ants are a phenomenally successful species. Been around for hundreds of millions of years. Highly optimized by natural selection. If there was any behaviour of ants that was pointless and wasteful, it would have been edited out of the species by natural selection long ago. The ants I am seeing today are just about the most efficient and effective life form possible with six legs and a body volume less than 5 cubic mm. And yet these ants are fighting wars. What does that tell me about wars?
A man who can stick to his theoretical musings about war in the face of massive empirical evidence that he is wrong, or at least deeply ignorant, is a man who is really, really unaware of the reality on the outside of his skull.
Well, if he couldn’t figure out cause and effect in wars, then the rest is going to be a utter mystery.
Rand,
Here’s one for your reading.
http://www.commentarymagazine.com/viewarticle.cfm/stimulus–a-history-of-folly-14953
Either you have a big adjustment like a 20 percent or 30 percent decline, or you have a big recession or you have a slow decline in property prices or several years of no growth.\par