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Why is failed Keynesianism back in vogue?
Author: VIN SUPRYNOWICZ
Fortuitously, I recently stumbled on a copy of Henry Hazlitt's "The Failure of the 'New Economics,' " 1959, reprinted 1973.
The "New Economics" referred to by the esteemed Mr. Hazlitt -- who replaced H.L. Mencken as editor of The American Mercury in 1933 and joined The New York Times in 1934, writing financial and economic editorials there and later a bylined weekly financial column well into the 1960s -- is Keynesianism, the economic doctrines of the Briton John Maynard Keynes which are still widely taught in American college economics courses.
The top blurb on the back dust jacket panel caught my eye:
"A great book, the best and most thorough exercise in economic demolition since Boehm-Bawerk exploded Marx's labor theory of value," wrote my late friend Murray Rothbard, in the National Review. "It is no exaggeration to say that this is by far the best book on economics published since Mises' great 'Human Action' ten years ago ... It will be read, and it will destroy the Keynesian system."
Writing in the Christian Science Monitor, Ludwig von Mises himself said of this book "Hazlitt has entirely demolished the Keynesian misconceptions."
In brief, Keynesianism -- as set forth by Keynes 73 years ago in his "General Theory of Employment, Interest and Money" -- holds that the twin answers to unemployment and economic downturns are massive government deficit spending and "cheap money" -- the artificial driving down of interest rates to "free up more credit."
This is relevant because this precisely describes the massive and inherently inflationary market interventions that have been brewed up in Washington since the middle of last year, sponsored as enthusiastically by Republicrats as Demopublicans -- despite the fact that Mr. Hazlitt, way back in 1959, demonstrated not only that these Keynesian remedies did not work, but that they often had precisely the opposite effect of that intended!
To "remedy" high unemployment, business failures and other symptoms of economic maladjustment, Keynes prescribed massive government deficit spending designed to keep wages and prices high, and the propping up of enterprises that would otherwise collapse in a heap of dust.
Is there any doubt this is what the Bush administration started in the past several years, and what Barack Obama and the Reid-Pelosi Congress are now continuing?
~snip~
"In Keynesian policy, unemployment is never to be corrected by any reduction of money-wage-rates," Mr. Hazlitt summarizes. "Keynes recommends two main remedies. One is deficit spending (sometimes euphemistically called government 'investment'). How good is this remedy? It was tried in the United States (partly because of Keynes' recommendations) for a full decade. What were the results? ... The central and decisive fact is that heavy deficits were accompanied by mass unemployment ..." in the 1930s.
"The other main Keynesian remedy for unemployment is low interest rates, artificially produced by 'the Monetary Authority.' Keynes incidentally admits ... that such artificially low interest rates can only be produced by printing more money, i.e. by deliberate inflation. But we may let this pass for a moment. The question immediately before us is: Did low interest rates prevent mass unemployment? ...
"In sum, over this period of a dozen years low interest rates did not eliminate unemployment. On the contrary, unemployment actually increased as interest rates went down."
Hazlitt proceeds to demonstrate that from 1949 to 1958, when the same policy of artificially pushing down interest rates was tried, "the relationship of unemployment to interest rates is almost the exact opposite of that suggested by Keynesian theory."
How could Keynes have gotten it so wrong?
~snip~
I believe there are two answers. First, a dumbed-down American populace, trained to believe that economic theory is deadly dull and of no practical use, tends to cover their ears when such stuff is discussed.
But the second reason is far more obvious. Imagine any of our egotistical and money- and power-hungry members of Congress or chief executives (of either party) today announcing, "Gee, this economic downturn sure is a misery. Too bad there's nothing the central government can do but to slash spending till our budget is in surplus so Washington is no longer crowding out private borrowers, meantime putting us back on the silver standard and shutting down the Federal Reserve. So all you lobbyists here to plead for special favors just might as well go home. Store's closed."
What? Give up the greatest excuse since Hitler and Tojo for enacting every pork barrel spending spree they can imagine? Are you crazy?!
Instead, what passes for "change" in Washington today are a chief executive and a Congress so desperate to place the heir-apparent to the guys who got us into this mess -- Timothy Geithner, head of the Federal Reserve Bank of New York -- in charge of their government monetary policy, that they avert their eyes and imitate Sgt. Schultz ("I see Nuh-think!") when it turns out their guy failed to pay tens of thousands of dollars in personal income taxes.
Other Cabinet nominees get tossed to the roadside for neglecting to pay a few hundred bucks to a baby-sitter, but that's how desperate this gang is to keep the same desperate, crooked -- Keynesian -- crew in charge of our sinking economic ship, rather than bring in some outsider who might run an audit, throw open the door to the empty vault, and spill the beans.
And they call it "change."
ReviewJournal.com - Opinion - VIN SUPRYNOWICZ: Why is failed Keynesianism back in vogue?
This porkulous deal has all been tried before.
It is true, If you forget your history you are certainly doomed to repeat it.
Author: VIN SUPRYNOWICZ
Fortuitously, I recently stumbled on a copy of Henry Hazlitt's "The Failure of the 'New Economics,' " 1959, reprinted 1973.
The "New Economics" referred to by the esteemed Mr. Hazlitt -- who replaced H.L. Mencken as editor of The American Mercury in 1933 and joined The New York Times in 1934, writing financial and economic editorials there and later a bylined weekly financial column well into the 1960s -- is Keynesianism, the economic doctrines of the Briton John Maynard Keynes which are still widely taught in American college economics courses.
The top blurb on the back dust jacket panel caught my eye:
"A great book, the best and most thorough exercise in economic demolition since Boehm-Bawerk exploded Marx's labor theory of value," wrote my late friend Murray Rothbard, in the National Review. "It is no exaggeration to say that this is by far the best book on economics published since Mises' great 'Human Action' ten years ago ... It will be read, and it will destroy the Keynesian system."
Writing in the Christian Science Monitor, Ludwig von Mises himself said of this book "Hazlitt has entirely demolished the Keynesian misconceptions."
In brief, Keynesianism -- as set forth by Keynes 73 years ago in his "General Theory of Employment, Interest and Money" -- holds that the twin answers to unemployment and economic downturns are massive government deficit spending and "cheap money" -- the artificial driving down of interest rates to "free up more credit."
This is relevant because this precisely describes the massive and inherently inflationary market interventions that have been brewed up in Washington since the middle of last year, sponsored as enthusiastically by Republicrats as Demopublicans -- despite the fact that Mr. Hazlitt, way back in 1959, demonstrated not only that these Keynesian remedies did not work, but that they often had precisely the opposite effect of that intended!
To "remedy" high unemployment, business failures and other symptoms of economic maladjustment, Keynes prescribed massive government deficit spending designed to keep wages and prices high, and the propping up of enterprises that would otherwise collapse in a heap of dust.
Is there any doubt this is what the Bush administration started in the past several years, and what Barack Obama and the Reid-Pelosi Congress are now continuing?
~snip~
"In Keynesian policy, unemployment is never to be corrected by any reduction of money-wage-rates," Mr. Hazlitt summarizes. "Keynes recommends two main remedies. One is deficit spending (sometimes euphemistically called government 'investment'). How good is this remedy? It was tried in the United States (partly because of Keynes' recommendations) for a full decade. What were the results? ... The central and decisive fact is that heavy deficits were accompanied by mass unemployment ..." in the 1930s.
"The other main Keynesian remedy for unemployment is low interest rates, artificially produced by 'the Monetary Authority.' Keynes incidentally admits ... that such artificially low interest rates can only be produced by printing more money, i.e. by deliberate inflation. But we may let this pass for a moment. The question immediately before us is: Did low interest rates prevent mass unemployment? ...
"In sum, over this period of a dozen years low interest rates did not eliminate unemployment. On the contrary, unemployment actually increased as interest rates went down."
Hazlitt proceeds to demonstrate that from 1949 to 1958, when the same policy of artificially pushing down interest rates was tried, "the relationship of unemployment to interest rates is almost the exact opposite of that suggested by Keynesian theory."
How could Keynes have gotten it so wrong?
~snip~
I believe there are two answers. First, a dumbed-down American populace, trained to believe that economic theory is deadly dull and of no practical use, tends to cover their ears when such stuff is discussed.
But the second reason is far more obvious. Imagine any of our egotistical and money- and power-hungry members of Congress or chief executives (of either party) today announcing, "Gee, this economic downturn sure is a misery. Too bad there's nothing the central government can do but to slash spending till our budget is in surplus so Washington is no longer crowding out private borrowers, meantime putting us back on the silver standard and shutting down the Federal Reserve. So all you lobbyists here to plead for special favors just might as well go home. Store's closed."
What? Give up the greatest excuse since Hitler and Tojo for enacting every pork barrel spending spree they can imagine? Are you crazy?!
Instead, what passes for "change" in Washington today are a chief executive and a Congress so desperate to place the heir-apparent to the guys who got us into this mess -- Timothy Geithner, head of the Federal Reserve Bank of New York -- in charge of their government monetary policy, that they avert their eyes and imitate Sgt. Schultz ("I see Nuh-think!") when it turns out their guy failed to pay tens of thousands of dollars in personal income taxes.
Other Cabinet nominees get tossed to the roadside for neglecting to pay a few hundred bucks to a baby-sitter, but that's how desperate this gang is to keep the same desperate, crooked -- Keynesian -- crew in charge of our sinking economic ship, rather than bring in some outsider who might run an audit, throw open the door to the empty vault, and spill the beans.
And they call it "change."
ReviewJournal.com - Opinion - VIN SUPRYNOWICZ: Why is failed Keynesianism back in vogue?
This porkulous deal has all been tried before.
It is true, If you forget your history you are certainly doomed to repeat it.