Thursday, September 24, 2009

Are Conservatives Closet Keynesians?

I'd like to start by pointing out that I'm not a conservative and I'm not a liberal. I'd like also to point out that my position on Keynes, whose "General Theory" I read, is well summarized by this statement by Greg Mankiw:
Keynes was a creative thinker and keen observer of economic events, but he left us with more hard questions than compelling answers.
Liberals have always had an easy time accepting Keynesian doctrine as one of their main options in policy making. So, it's no surprise that the current administration chose to go the distance.

Nonetheless, the appropriation of Keynes by the left, despite their frequent protestations, has never impeded conservatives from having a heated love affair with the "Cambridge Master," even if sometimes a closet one. Examples abound. Nixon once said that "I'm now a Keynesian in economics." The previous administration was unquestionably conservative, and yet fiscal profligacy Keynesian style was its standard response to every economic downturn. As disciples, they would have made Keynes really proud. Another example is the recent conversion of Posner, a bright Judge and University of Chicago Law School professor and conservative thinker, to Keynesianism:
Baffled by the profession's disarray, I decided I had better read The General Theory. Having done so, I have concluded that, despite its antiquity, it is the best guide we have to the crisis.
It should not be surprising however that both liberals and conservatives, especially when given political power, love Keynes. Both ideologies nurture deep beliefs in the infallibility of government intervention and the fallibility of markets, beliefs however that are at the core of the failures of Keynesianism. That Keynes didn't know much about modern public choice is understandable. That contemporary conservatives and liberals however willingly choose to ignore it is unacceptable, something that can only be explained by modern public choice science itself: these beliefs are simply the result of the self-serving search for power and control in politics (although it could be argued that there are also deeply rooted religious factors behind this fatal attraction for Keynesian ideas).

Besides all that, Keynesianism has never been really discarded when it comes to policy making, despite all the advances in macroeconomics after Keynes. It makes absolutely no sense therefore to say that we should return to Keynesian economic policies, as if we have ever really abandoned them. Politics and Keynesianism is a marriage made in hell.

To conclude, I'll cite this enlightened commentary on Keynes by George Mason University economist Russ Roberts:

Part of Keynes is compelling, the part about animal spirits, the idea that people get worried about the future, that the riskiness of the future is hard to quantify, and that this leads to people reining in plans for consumption and investment, leading to hoarding and reduced demand for all kinds of goods.

What is not so compelling is the conclusion that this can be rectified and improved on by the government taking up the slack, regardless of the reason. What is not so compelling is the idea that consumption creates growth. Consumption might create production (it depends) but consumption is not growth except in the very immediate term.


Joseph said...

Actually, I believe that Nixon said "Everyone is a Keynesian now," not "I'm a Keynesian now."

It's a minor but important point.

Joseph said...

Nevermind, I just read the source. :)